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Thursday, August 11, 2011

ASX 200 (SPI) Market commentary - Stock Market Crash

My last post showed how the DJI (Dow Jones) stock market crash was built into the charts.
This post covers the ASX 200 (the Australian top 200 companies) the Ric code is XJO.

Lets look at the chart:

Again like the DJI chart we have two well known chart patterns for reversals, Double Top and head and Shoulders. The major pattern is the double top noted as 1 & 2. The measurement from the top to the neckline is 505 points.

You can clearly see how the XJO trended down to the neckline and then formed the head & shoulders (3,4,5) pattern. This new pattern was the trigger and setup for the double top to released its energy.
So the market dropped actually 711 points but bounced back up to the 505 point measurement level.

On the weekly chart , 3780 is a monthly low extension level, the market actual hit a low of 3765.90 only -14 points off. Lets look at the chart,

Points of Interest:

1. Moving averages (50,21) are still not crossed over
2.Current bar is creating a strong reversal candle called a hammer, with confirmation of a move above the high of this candle would be a buy signal.
3.Test level on the way up is 4276
4. Market bounces of RSI 30 level (cheap level), which is good. 

Current day trading action indicates that regardless of the overseas issues the ASX 200 is finding a footing and shrugging off the headlines.

Enjoy.

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Wednesday, August 10, 2011

DJI (Dow Jones ) Daily comment 10 of August 2011

Well I haven't been blogging as I waiting for the markets to calm down. However this didn't happen and mass panic selling on a scale not seen (at least by me) took place.

My last post on the DJI (Dow Jones) was bullish and I should have commented on what levels if broken means the trade is invalid. Sorry :<

Lets have a look at the charts,





Looking at the daily chart we can see the reason why prices acted as they did (so far).
The major pattern is called a triple top which is one of the most strongest potential reversal patterns there is. I number the tops from 1 to 3. Also looking at tops 2 & 3 we see a double top formed.

Now the way to measure a move from a double or triple top is from the highest top to the neck line (see the measurement arrows. So first to go was the double top of 461 points to hit support of the previous lows.
Notice the one day rally at this level.

Also notice that the moving averages haven't crossed over so the trend is still hanging in there.

However the rally failed the next day and the triple top set in with an expected 1,016 point range.
This it did in such a short period of time it scared everyone!.

Of course the news stories effected the panic selling but the charts show that its not just random numbers.

Now lets look at the weekly



Another exhaustion pattern called a head and shoulders. I have drawn the neckline. Again near perfect measurement of the range. In this case its 1,151 points.

The interesting thing is that the Moving Averages have not crossed over at all so the trend is still up, though price action may go sideways until it forms another pattern.

I hope this helps give clarity to the markets without talk of sovereign debt and  AAA ratings.

Enjoy

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Monday, August 8, 2011

How to control and stop your trading losses and risk

If you have been caught in the falling markets in the last few days with large trade sizes and now find you holding large paper losses then I highly, NO make that imperative! that you learn about one of the fundamental tools in surviving as a trader its called POSITION SIZING.

Position sizing is a simple calculation of how much  money you are willing to lose in any one trade. Most new traders don't even think about this very question. Instead they just focus on the potential profit a trade may give them. When the S#@#$ hits the fan suddenly they are caught like a deer in the headlights and their minds freeze up as what to do. I have been there and its the worst thing, wanting the trade to go back up (or down if short) only to see it keep going against you and the losses getting bigger and bigger. This is not what you wanted when you placed the trade and taking the loss gets harder and harder as it gets bigger and bigger. It's a catch 22 situation.
 
The way to avoid this is by knowing in advance how much you are really willing to lose, and if you do lose that trade, is your trading capital still intact to trade again.

The formula is this the amount you are happy to lose divided by the distance from your buy price to your stop price. eg  I want to buy stock XXX at 1.10 and my stop loss is at 1.01 I am willing only to lose $200 if  the trade goes wrong. So how many shares do I buy?

The answer is $200/.09 = 2,222 shares.

Now as long as I have a hard stop loss in place (sitting in the market) my chances of getting runover is reduced greatly. If the market does gap open below my stop I still will be in a better position to cope with the crisis as my losses will still be within a reasonable range eg, $200 -$500.


Now, the easy way to calculate this is to use a handy little app that does it all for you and has 5 other models to work out position size and risk. If you fill out your details in the right hand column I will send you the link. YES its FREE and its a professional level tool. It really helped my trading.

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