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Probabilty Wins, the market stalls

In this news letter

What’s Happening Now

Peter at ATAA Sydney in January

Learning to meditate course

Welcome

In the last newsletter I mentioned the probability was high that a slowing or a pull back in the market could happen. This has been the case so what now?

Most traders will start to focus on “why”? There could be many reasons from simple ones to complex, the fact remains it is happening and a more positive and constructive focus is to ask “what” do I do now.

This is where having a plan and a knowing of your methods probability make it all so simple, otherwise many traders get emotional and start REACTING rather than responding calmly to the change that is happening in the now. Let’s have a look at the XAO chart to determine what our course of action may be.

The weekly chart of the XAO shows a close below the 6 EMA (which is a 30 day daily EMA if you want to think daily parameters).

 Clients and students will know that this is a signal the market is softening. It is not a signal to say the world is ending, the markets will collapse, the bull trend is over, and you don’t need to throw yourself off your nearest local lookout. It’s been an amazing 19 week run up above that 6 EMA and it didn’t take Einstein intuition to say sooner or later it would change, nothing is permanent in the market and good traders learn to flow with the change that is happening in the moment. Now looking at a slightly longer time frame of the XAO…..

 The Medium term trend remains up, the red line is a 24 EMA and the XAO is in a solid uptrend on a medium term weekly scale.

The long term monthly trend looks strong also, the blue line is a 10 EMA

So if you have a plan you will know what to do. Some will hold the longer term trend, some will start to tighten stops. What do I mean by tighten stops?

I will show two examples.

Here is a weekly chart of TNE displaying a weekly 3 EMA and a 12 EMA, you can clearly see the 52 week buy at 1.83. Considering the recent market weakness it is out performing the market, the lines have not crossed, in fact it’s still rising, it is a strong stock. If  YOUR RULES of your high probability method or system were to hold that stock as long as those lines don’t cross, you would do nothing and wait, rather that panic and sell, wouldn’t you? I hope so. Because if you didn’t you would break one of the GOLDEN RULES OF TRADING…..HOLD YOUR WINNERS and cut your losers.

You can also clearly see the 52 week high buy of LCM at 1.54. Considering the recent market weakness it is under performing the market, (and is also under performing TNE) the lines have crossed, it is falling, it is a weak stock. (in the present moment that is, it may strengthen again) If  YOUR RULES of your high probability method or system were to sell that stock if those lines DO cross, you would take action and sell, rather than stress and be indecisive, wouldn’t you? I hope so. Because if you didn’t you would break one of the GOLDEN RULES OF TRADING…..hold your winners and CUT YOUR LOSERS.

THEN: By doing that you free up the money from a weak trade to re employ into a strong trade, that strategy is similar to resting a weak player in the sports team and replacing him/her with a stronger player from the bench.

ALSO: More importantly you have a method to keep you psychologically balanced. A method that makes sense, that works within the parameters of a high probability medium term system, and keeps you from wondering what do I do now the market has weakened?

 A few more examples:

This VOC trade is an example of why patience and discipline pays off. It would have been an excruciating time watching the stock go sideways for some time after the initial breakout, but look at it now.

AMP was a reasonably good trade making 15% capital return plus a 2.5% dividend in March (70% franked). But the trend ended in May and since being stopped it has fallen hard, recovered a little and gone sideways. This is a great example of why you should take stops. The money freed up from selling AMP could have been re employed into new uptrending stocks like TNE or VOC. This simple weekly strategy executed well and not too often out performs many daily systems with a lot less stress and work.

  Sydney Seminar

I am back at the Sydney ATAA (Australian Technical Analysts Association) on the 20^th January. It will be a similar presentation to the one I gave at Newcastle earlier this month but of course updated to reflect the current market.

In June 2012 I presented a trading system to the Sydney ATAA which I will review at the presentation on the 20^th of January 2014.   As well as reviewing the results of that method  the will focus will be not just on results, but the psychological aspects of weekly trend trading. Introducing my experience of meditation and Buddhist/Zen psychology and how it has helped my trading.

 Again I will disclose the rules to the method taught in June 2012, examine in detail some of the trades, answer questions, and discuss my thoughts on the market in general. The fee is $30 but for first timers FREE.  Below is the ATAA link.

http://www.ataa.com.au/meetings

If you are interested in learning to meditate.

As I travel round and meet more people I am often asked about meditation. I am currently living at the Kadampa Meditation Centre at Wamberal 80km north of Sydney where in January we have some learn to meditate classes here at the centre.

They are on the 18^th of January, choose between two time slots , morning or afternoon

9am to 12 noon or 3pm to 6pm Cost $25 per session.

If you cant wait that long there is a similar one on the 14^th December 9.30am  to 12.30

The January course is not up on the website but he December one is, check it here on the link.

http://centralcoastmeditation.org/transforming-adversity

Thats it from me this time, if what you read above resonates with you and you are interested in knowing more about weekly trading and high probability systems, email or ring me on 0403821523. Thanks for reading this far if you made it!

Peter

If we are demoralized, sad and only complain, we’ll not solve our problems. If we only pray for a solution, we’ll not solve our problems. We need to face them, to deal with them without violence, but with confidence - and never give up. If you adopt a non-violent approach, but are also hesitant within, you’ll not succeed. You have to have confidence and keep up your efforts - in other words, never give up.

Dalai Lama

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