Thursday, 27 November 2014

Gap trading on AAPL

The main focus of my technical trading strategy is using previous support and resistance levels combined with the price action around these to indicate the next potential move.

One of the useful opportunities is gap trading. When the market opens higher or lower than the previous close, it offers an immediate support or resistance level.

The gap highlighted in the Apple daily chart -- and the first day close above -- is a good buying opportunity. The potential to buy the stock at $81 with a stop at 80 if required saw the market closing strongly through the previous highs and can then be held with a stop moved to $82 for a risk free trade.

Six weeks later and another good gap up leads to further strong gains.

The problem with indicators

I like to keep my charts clean and free of clutter and indicator bias. The only indicators I use in my trading are moving averages, which I use with candlestick or bar charts. I also don't use candlestick patterns as such; just read the bars to show how the market is behaving.

The reason I don't use indicators for my trading is highlighted in the charts below.

The chart above simply shows how indicators get traders into trouble. On a monthly basis the ES has been in oversold territory on the RSI for close to two years so the tendency to look downwards has caught many traders out by always trying to pick a top. 

For me, the bars tell a story and remove the need for volume indicators. Look closely at the longer green bars and you can see that there is usually always follow-through.

In the simplified monthly chart below, you can trade without this bias. The ES had a target of the previous highs at 1450. Once the market approached this level it is time to step back a little and let the market dictate the next direction. The rectangle area shows clearly that the market has broken out to new highs and failed to correct significantly, showing that the market is stable at these prices and further gains are likely.

The strong bullish bars through 1700 and 1800 in particular gave buying opportunities.

The infamous March 2009 low is marked also and you can clearly see that once significant buying occurred on consecutive months, the market had made its low. 

Not so random markets

Take what you wish from this S&P500 chart; it highlights that even during the October panic, there is order to be found. S&P is a very liquid product so this would explain the reaction of time and price. 

A closer look at moving averges.

I like to use moving averages as a 'line in the sand' indicator of recent price behaviour.

It is also well known that large institutions pay attention to the 50 and 200 period moving averages; in particular a crossover of these to highlight trading opportunities.

The charts below will show a few examples on different timeframes and securities to highlight that price action can be used across different investment products and duration.

The EUR/USD chart above displays some action on the weekly chart around the 200ma, with the follow through that can occur. The rectangle areas show small risk opportunities with large potential reward.

The monthly chart of Gilead Sciences is a great example of the 200 period moving average. Once price crossed through, it never looked back and was up +300%. I used the monthly chart to highlight how damaging over-trading can be.

The chart of Century Aluminum crossed the 200ma in January of this year and returned 100% on your investment. In the example of CENX you would be buying the ma cross at 11.50 approx and the potential to cut the investment if it fell under the ma.

Tuesday, 25 November 2014

Welcome to Investment FTS

Welcome to Investment FTS!

Our goal is to provide a blog full of quality investment content that cuts through ego, opinion, false information, complicated economic and financial data, and the information overload that is rife in modern financial media.

We will post regular analysis of present day financial market opportunities and other investment ideas in order to help our readers gain knowledge and control of their investments, and help them avoid the the psychological pitfalls that can ruin their portfolios or trades.