Stick to your system

 Johannesburg - When considering a trade there are numerous aspects to take into account, irrespective of whether you use fundamental or technical analysis as the basis of your investment decisions.

The first thing you want to determine is the trend. You do not want to trade counter the trend. If you are buying you want to be as sure as possible that the trend is up.

Not only do you want to trade with the trend, you also want to get in as early as possible to catch as much of the trend as possible.

Then you would really want to know what you are risking. Where will you get out of the trade if you are wrong? This is your risk and all that you stand to lose.

But getting this right is easier said than done and you need all the tools possible to assist you in making a decision. This is when a good trading system can be of tremendous value.

The following chart is a daily chart of Capitec and illustrates how the system traded this share over the last five months.



There are three colours on the price chart: Blue to indicate a rising trend, red to indicate a falling trend and brown to indicate a sideways trend. There are also the buy and sell triggers indicated in dotted lines (red for sell and blue for buy) with arrows indicating entries to buy (green) and sell (red).

This is how the system analysed price behavior since February:
1. We see how the price colour turned blue and a buy trigger is indicated by the dotted blue line on 8 000c. The next day the price moves above 8 000c and the system buys, as indicated with the green arrow.  At the time the stop has to be set at 7 600c as indicated by the pink line. Every day the stop is adjusted according to the price movement.  You now remain in the trade until stopped out.  In all this time the trend remains up as indicated by the blue price bars.

2. At point two the system firstly indicates a sideways moving trend as seen by the brown price bars. This can be used as an early warning sign that the trend is losing momentum and that you could consider taking 50% of your trade off the table. Then price falls below the pink stop line and you are stopped out of your trade for a profit of 17%. The trend turns down as indicated by the red price bars but important:  the system never enters a short trade as the sell trigger level is not exceeded to the downside

3. At point three this is repeated and when the buy trigger is again exceeded and then stopped out with a 5% profit as price fell below the stop line at point four.

4. Here we see how the trend becomes negative but the system never enters a sell trade.

5. At point five the system enters a buy trade but is soon stopped out by the stop loss level a few days later to prevent losses. Then the trend turns down and the sell trigger is exceeded to the downside but stopped out days later again by the stop loss.

6. At point six the downtrend (red) slows and becomes sideways (brown).  Then the start of a new uptrend (blue) is indicated by a blue price bar and the system sets up for a buy.

7. At point seven the buy trigger is exceeded and the system buys the new trend at R101 with a stop on 9 700c as indicated by the pink stop loss level.

8. At point eight, after a winning trade of 20%, the system is still in the trade with the stop loss now at R115.  It will only exit the trade once price falls below the daily adjusted stop loss level.

All of this information is daily revealed in our newsletters as we analise 130 shares and 12 indices to help us in making our trading decisions. This system made 17% profit in Capitec in the last 19 days, 12% in Datatec in four days, 7% in Lonmin in four days and 5% profit in Anglo American in four days.

Irrespective of what system you follow, test it and stick to it. The result will be the evidence of your success.

 - Fin24.com