Trading systems explained

Johannesburg - Dimension Data Holdings [JSE:DDT] started the year at 870c and in early August traded just short of  1 440c.

This was a rise of 66% in eight months.  How could a trading system help you to profit from such a move?

Refer to the daily chart of Didata dating back to the start of 2010. 



All the blue signals are buy entries and all the red signals are sell signals. This thin pink line is the daily adjusted stop loss level that the system calculates.

Here one can see how the system first entered a buy trade at about 900c (1) and was stopped out when the price fell below the pink line at 950c.  Then the system failed to enter into the rising price until March when it again buys at 1 020c (2) and then gets stopped on 1 050c.

The system then entered the first sell trade at 1 060c (1) and gets stopped out at 1 030c.

The system then entered two buy trades (3 and 4).  First it bought at 1 030c (3) and then again at 1 070c (4).  Both trades were stopped out as the price fell below 1 050c.

Form March into July prices went very much sideways.  The system sold at 1 030c (2) in anticipation of a decline but was stopped out at 1 040c.  Then the system bought at (5) and (6) but was stopped out twice at about breakeven.  The last selling trade (3) sold at 1 100c but was stopped at 1 080c for a marginal gain.

Then the big one came and the system entered a buy trade (7) at 1 140c. Two days later the price rocketed to 1 420c. But when does one exit such a trade?

Notice how the stop loss level was calculated daily and price fell below this stop at 1 400c (8). You are now out of the trade.

So, in the 570c move since early 2010 the trading system managed to enter into 10 trades resulting in a gain of 440c.  This is not a full 570c but 77% is a good percentage for somebody that preferred to actively trade a market.

 - Fin24.com