Scrolling through social media, the comments from fellow traders have recently been unanimous. Stocks are falling with no end in sight. One of the most interesting trading opportunities out there in the market are stocks setting up for a reversal of a downtrend. Finding the early signs on a chart, ahead of the crowd, are a technical trader’s advantage.

These are some of the signals I look for on the chart, indicating the potential for a stock turnaround:

1. Break of a downtrend line

2. Change in the trend indicator. Short-term GMMA passing up over the long-term GMMA group

3. Reversal of the order of the GMMA groups to an uptrend. That is, the short-term GMMA is sitting above the long-term GMMA

4. Bullish divergence on a momentum indicator like the Rate of Change – ROC

5. Bullish momentum signal where the ROC sits above the zero line

6. Reversal patterns such as head and shoulders or a double bottom

At least three signals are enough to place the stock on my watchlist of potential trades.

Previous darlings of the market are interesting stocks to watch. Solid downtrends confirm the continuous falls in price, yet at some time in the future, the trend may reverse back to the upside.

The first signs of crowd behaviour changing are often found on the charts.

Let’s look back and analyse 3 ASX stock charts.

1. PLS Group Ltd - PLS,

2. Weebit Nano Ltd – WBT

3. Clarity Pharmaceuticals Ltd – CU6

At the time of noticing the first stages of a turnaround, these charts were posted directly onto the X platform.

1. PLS Group Ltd -PLS

Identifying at least 3 good reasons for a change in the price direction makes the probability of it happening a little bit higher.

Figure 1

On this daily chart of Pilbara Minerals Ltd – PLS, Figure 1, notice the following:

1. Price had broken and closed above the downtrend line

2. Reversal head and shoulders

3. Short-term GMMA was rising up through the long-term GMMA in an attempt to break the GMMA downtrend order

Below is the chart of PLS, Figure 2, showing how the breakout developed and turned into a solid uptrend supported by traders and investors.

Note: PLS had a name change from Pilbara Minerals Ltd to PLS Group Ltd in November 2025.

Figure 2

2. Weebit Nano Ltd – WBT

The following chart of WBT, Figure 3, was analysed and posted on the X platform.

Figure 3

This turnaround was already in place.

1. GMMA downtrend order changed into a GMMA uptrend order

2. Wide gap between the short-term group and the long-term group indicated the emerging uptrend had strength

3. There was potential for a new leg in the uptrend with good support from the short-term. Indicated by the well separated moving average lines.

The daily chart of WBT below, Figure 4, shows us the development of the uptrend identified. Both the traders and investors were buying into the stock, indicated by the moving average lines separating out nicely as the uptrend continued to extend.

Figure 4

3. Clarity Pharmaceuticals Ltd – CU6

One final turnaround chart identified was Clarity Pharmaceuticals Ltd – CU6.

This analysis of CU6, Figure 5, was also posted on the X platform.

There were a few positive signals for the potential reversal of this long-standing downtrend:

1. Price was approaching the resistance level at 2.52 and was in the process of making its second attempt to break through this level

2. Breakout through a downtrend line

3. Short-term GMMA group was beginning to turn over and upwards. Moving Average lines were emerging out of compression with the potential for further expansion to the upside.

4. Rate of Change – ROC 9 bullish divergence (not shown on X post. See Figure 6 chart below). Price made a higher low while the ROC indicator made an equal low.

5. ROC 9 was above zero, indicating bullish momentum (Figure 6 chart below).

CU6 broke its dominant downtrend. Price surged with the support of traders and investors towards $5.00. The moving average lines of both the short-term and long-term GMMA groups were widely separated indicating good buying. The gap between the two groups showed excellent strength in the uptrend.

Figure 6

Reversal signals aren’t a guarantee they are simply about tilting the probabilities in our favour. This is why for any trades going against us, it is essential to define our stop loss before entering a trade to protect our capital should the market prove us wrong. Catching a trend turn in its earliest stage offers some of the highest reward opportunities in the market.

For further reading:

GMMA - Guppy Multiple Moving Average

Trend Indicator GMMA

ROC - Rate Of Change

Momentum Indicator ROC

In a volatile market, cash isn’t just a safety net – it’s a tactical choice. There are many technical signs for reverting to cash, signs we shouldn’t ignore, though our instinct is to always be in the market. Technical cues alert us to possible changes ahead, often before it happens. Whether it’s a major index trend reversal or an unexpected behaviour in price, we need to recognise when cash is the superior play.

Market Uptrend Broken

In one week, the ASX 200 index fell as low as 4.3%, ending the day down 2.9%. Notice the long red candle at the right most side of the chart.

From a technical perspective, there were warning signals of the incoming fall a few days ahead of the actual event.

Warning signals

1. After hitting all-time highs at around 9200, the exponential moving average lines of the short-term group began to turn over and downwards.

2. Price candle ‘1’ saw the Rate of Change (ROC) indicator fall below the zero line. Momentum changed from bullish to bearish. An attempt the next day to return to bullish momentum above zero failed. Another red candle formed and the ROC fell further away below zero as the downward momentum accelerated.

3. Short-term GMMA group fell through the long-term GMMA effectively breaking the uptrend order.

Trades Signalling Exits

In February, the stop losses were triggered for all my daily chart trades. Each position was closed for a profit. Some for only single digit percentage profits. Still, a profit is always better than a loss.

The following TTM trade was one of the daily chart trades I closed in February.

A breakout on the TTM daily chart above the resistance level of 0.60 provided an opportunity in an existing uptrend. The short-term GMMA was above the long-term GMMA in an uptrend order and the gap between the two groups showed there was strength in the uptrend.

A position was opened on TTM

🎯 Target Profit 0.77

❇️ Entry at 0.635 as marked by arrow

🛑 Stop Loss at ATR 0.51

From the entry marked by purple arrow, price moved sideways then rallied upwards to the Target Profit of 0.77. Given the strength of the uptrend with traders and investors still buying the stock, a decision was made to keep the TTM position open. In addition to the ATR trailing stop loss, a Count Back Line stop loss was calculated alongside rising price, keeping a tighter trailing profit stop loss closer to price action.

The CBL stop loss kept the trade open to the highest close price of 1.15 on the daily chart. Instead of taking the profit at the CBL stop loss at 1.09, I ignored the first warning signal, expecting further upward price moves in the uptrend.

The TTM position was exited after price closed below the ATR stop loss line. This was the second and final warning signal to take profit. The short-term GMMA lines had also turned over and downwards in confirmation of the break down in the uptrend.

TTM was closed at 0.94 for a profit of 48%.

Breakout Failures

Out of a list of 10 technical breakout charts to watch, nothing had developed into a good breakout trade. Some stocks saw price collapse while other stocks moved sideways after a small breakout in price.

Star Minerals – SMS was an example of one of those stocks.

Price broke out through a trendline and resistance level at 0.065 as marked by the purple arrow. Failure to hold above the resistance line saw price fall then move sideways. The short-term GMMA lines turned down as price dropped and closed below the support level at 0.065.

A second example of a failed breakout was WAF.

Given a better market environment, a potential breakout like this WAF chart may have seen a high probability bounce and recovery off the long-term GMMA.

Compressed short-term GMMA lines are never in this state for long. Every compression eventually widens and a clearer direction emerges either to the upside or downside. Without any further confirmation for the potential direction of the compressed lines, it was considered a very high risk setup.

The short-term GMMA lines eventually showed a preferred direction as the lines expanded out to the downside. Traders sold off WAF pushing the short-term GMMA down through the long-term GMMA, effectively breaking the GMMA uptrend previously in place.

The trader group was now below the investor group in a GMMA downtrend order. WAF investors were also changing their mind about the stock as the long-term lines started to turn over and compress.

Capital Preservation

Sitting in cash is a decision made with the goal of preserving capital. In a risk-off environment where trading opportunities are scarce, making no profit is the preferred choice over taking trades where the probability of success is against us. The good news is when the market trend shifts and the trading opportunities return, we will be ready to deploy our cash into high probability setups once again.

Read more on CBL

Markets hitting 5 month lows, daily chart uptrends breaking down and day after day stock prices continuing to slide. Under these market conditions, many traders saw their open profits drop. This was a time where I switched out from the usual stop losses to the Count Back Line - CBL. It tightens the stop loss around the stock price and often produces an earlier signal to lock in profits.

Market Index Declining

For four weeks in a row, the XJO weekly chart printed a few red candles in a row. The Rate of Change ROC indicator fell under the zero line. A sign of bearish momentum and a potential start of a downtrend.

Opening new trades was not a good idea in this kind of risk off environment. A similar pattern had occurred earlier in the year with the market crashing to a low of 7169. We needed to exercise caution.

Figure 1

Up until this most recent decline, the general uptrend was strong. The exponential moving averages of both the short-term and long-term groups were well separated. There was support from traders and investors and the gap between the groups indicated good strength in the uptrend.

Many stock prices struggled to rise against the falling market index. For the profitable trades remaining open we needed to decide on either holding the position or finding an exit before profit eroded away.

One possible solution was switching over to a stop loss indicator moving in line with and closer to price action.

Countback Line Indicator - CBL

The CBL is a calculation created by Daryl Guppy. It provides a short-term support level for a stock as its price moves higher and is recalculated each time a stock makes a new high. As the recalculated support level moves up with price, the CBL becomes a trailing stop loss and profits are protected.

It is easily calculated manually if your software does not have the CBL indicator.

Figure 2

The Count Back Line in an uptrend is calculated by identifying the highest high of the trend, in this case the candle marked here by 1.

From the bottom of candle 1, a horizontal line is drawn to the left until it hits the next candle with a lower low, candle 2.

From the bottom of candle 2, a line is drawn horizontally to the left until it hits the next candle with a lower low, candle 3.

On the third candle a horizontal line is drawn and projected to the right.

This line becomes the CBL value. The CBL is a short-term support level. A price fall with a close below this support level provides a signal to exit the trade. When price closes below the CBL the uptrend is no longer intact.

This is how I used the CBL for a previous trade on Vault Minerals.

Switching to the CBL

VAU had been trending up strongly with widely separated exponential moving averages. The gap between the trader and investors groups reflected the strength of the trend.

A trade based on the VAU daily was opened as follows

🎯 Target Profit 0.828

❇️ Entry at 0.69 as marked by arrow (Figure 3 chart below)

🛑 Original Stop Loss at 0.62 taken from the ATR line on the VAU daily chart

Figure 3

On the VAU daily chart, the candle marked ‘1’ matches the third down week in a row on the XJO index. (Refer back earlier to XJO weekly chart Figure 1).

Notice how price had just fallen short of reaching the target profit marked out by the green line. After missing the profit target, price began to move downwards.

In order to preserve my profit, a switch from the Average True Range (ATR) stop loss to the CBL line indicator was made. Let’s zoom in on the VAU chart for the CBL calculation.

Figure 4

We identify the highest high in the trend (Figure 4), marked as ‘1’ then take the low of this candle and count back to the next candle with a lower low, marked as ‘2’. Count back for a third time identifying the candle with the next lowest low, marked as ‘3’. Taking the low of candle ‘3’ we draw a line across to the right side of the chart.

This becomes the new stop loss level for the trade. The new CBL stop loss sits higher than the original ATR stop loss used when the trade was originally opened.

If price closes below this CBL line it is taken as an exit signal and a potential end of the uptrend. Price fell again and closed below the CBL line. The trade of VAU was closed at a profit of 9%.

Price continued to fall a further 12% from the CBL line before attempting a bounce (Figure 3).

Had the trade remained open until an exit signal was triggered from the original ATR line, all unrealised gains would have been erased. Using the CBL line managed to preserve a higher percentage of the open profit, locking in an exit from the trade at a higher price.

On Japan Festival Day I lined up in a long queue for a Kyoto style Okonomiyaki, a Japanese savoury pancake. Fast forward to the Hong Kong Festival a couple of weeks later, same area, same food stall except now there were zero people in line while the other Chinese themed stalls were busy. Sometimes the trading success of a stock depends on the right environment and the sentiment of the people.

Here are a couple of background checks I like to make for an idea of market sentiment and for finding a high probability trend trade. Using a past trade on LKY, I will show you how I managed the position for a profitable outcome.

1. Market Index trend

Bullish markets in a market index uptrend are a reflection of positive sentiment. It may increase our confidence in opening a position or keeping positions open for longer.

This ASX 200 index chart was in a strong uptrend. Focusing on the more relevant right side of the chart, both the short-term traders and long-term investor groups were buying in the market. The exponential moving averages were widely separated and the gap between the two groups signalled a strong uptrend.

Bearish markets where the indexes are in a downtrend suggests some uncertainty. We may be cautious in taking on trade risk whether it is extra positions or holding a position open for a longer time in the market.

Around this time on the chart, I was looking at opening a short-term trade on Locksley Resources – LKY.

2. Two Timeframes One Trend Direction

Trading from a weekly chart gives a trade more room to move. Sometimes trading from the daily chart leads to an early exit when a stop loss indicator triggers on the daily price fluctuations. Switching to a weekly chart may accommodate price noise better and keep us in the trade for longer.

Both the daily and weekly chart of a stock must be in an uptrend before we choose the weekly chart as the timeframe to trade from.

On the daily and weekly charts, LKY met these conditions. The traders and investors were supportive of the uptrend in place as indicated by the widely separated lines of the exponential moving averages. The gap between the two groups signalled a strong uptrend was in place.

A trade based on the LKY weekly was opened as follows

🎯 Target Profit 0.175

❇️ Entry at 0.13 as marked by arrow (see chart below)

🛑 Stop Loss at 0.105 taken from a strong support level on the LKY daily chart instead of the ATR line at 0.044 on the weekly chart as it was too far from price action.

Once the trade was in profit, we switched to the ATR line for a trailing profit stop loss. The ATR line had moved above the initial stop of 0.105.

Given the favourable trending environment, LKY achieved the profit target quickly within the same week of entry. Marked by the entry arrow.

A decision needed to be made of either taking profit or allowing price to run further in anticipation of more profit. Considering it was a weekly trade and the idea was to let price run for longer on this timeframe, the decision was made to leave the position open.

In addition, the strong trend on both the daily and weekly charts showed the probability of price rising further was high. Traders and investors continued buying LKY as indicated by the widely separated exponential moving averages of the short-term GMMA and long-term GMMA.

Obeying my technical analysis rules proved to be the correct move as price rose higher again. The ATR line was still used as the trailing profit stop loss. LKY made a couple of more big spikes in price, gaining 96% over one week followed by 21% over the next.

The recent price spikes resulted in current price sitting in an area too far from the ATR line. A drop to the ATR line from price around its peak meant a drop from 0.59 to 0.25. A hard to stomach 58% drop in profit!

Not willing to wait and watch price drop towards the ATR stop loss level, an exit was made at 0.64 for a return of 392%. This exit candle is marked by the star.

Given such a major extraordinary spike in price it was only natural for price to drop. We observe price pulling back as some traders also took profit off the table.

In another type of market environment where the market index may have been bearish, holding on for higher percentage moves becomes higher risk as our targets and wish for more profit may not be met with much confidence. Like the Okonomiyaki stall, the right crowd and appetite drives demand leading to increased buying and opportunities for profit.

The market has been very bullish on speculative stocks lately and X has been a great source of trading ideas for these types of stocks. Scrolling through the posts, we need to analyse the stock codes for ourselves, avoid the pump and dump stocks and create a trading strategy for finding the ones likely to return good trading profits.

Trading the speculative end of the market hasn’t always been my preference. In the past, most stocks I traded were classified more as small caps than speculative. Thanks to the X platform, I have found stock opportunities in the lower priced end of the market meeting my trade criteria. Some of the stock prices were only a few cents or just over 10 cents. It turns out, a plan for trading smallcap/midcap stocks, plus a couple of tweaks, may also be applied to trading the speculative stocks too.

Features of a Speculative Stock

· Often a stock with a market cap of between $50 million and $300 million

· Higher in volatility by nature

· Risky to trade e.g sudden percentage moves up of 30% are made just as easily as a sudden drop of 30% in one day

· On the upside, when these speculative stocks rally, they make those type of rocket returns all traders crave, in only a short period of time.

Positions are opened and closed within a few days to a few weeks.

Below are some of the rules I follow for selecting and managing a speculative stock trade based on technical analysis.

Most Important Rule

Trading is trading. It is not an investment so if the stock turns against us, we don’t want to fall into the trap of keeping the trade open based only on good fundamentals. Switching strategy midway is not advisable.

Liquidity

Checking the volume of trading on a stock is important for getting into and out of a trade. A daily trading volume of millions of shares is a good sign of liquidity.

I tend to look for a daily volume of around 500 000 as the minimum despite the number being on the lower end of volume levels. It depends on how much capital you are planning to allocate to the trade.

Position Sizing

The initial amount of risk for a position is 1% of total capital, that is the initial loss if the trade moves against us.

Charts to Avoid

Price spiking suddenly out of a long period of compression is not a stock we like to trade. It looks similar to a pump and dump scheme. The price doesn’t trend up for long and sells down quickly as interest in the stock declines.

Charts with too many spikes suggest a choppy market with fluctuations in both directions. The following chart does not look like an easy chart to trend trade.

Trade from the Daily Chart

Keeping an eye on volatility is better done at the lower timeframes. My preference is the daily chart over the weekly chart for monitoring price. Anything can happen over 24 hours and we don’t want to wait until the end of the week before taking any action.

On the daily chart of Sun Silver – SS1, a past trade opportunity presented itself as price broke out and closed above the downward sloping trendline in an attempt to end the previous sell off by traders.

Ensuring the GMMA is in an uptrend order is the first criteria for making it onto a short-list of stocks to trade.

Trend

Establishing the direction correctly is one of the most important starting points. The stock must be in an uptrend. Using the GMMA indicator helps us see this more clearly.

On the chart of SS1, the short-term GMMA is above the long-term GMMA in a GMMA uptrend order. The dip in price was unable to break the uptrend as price bounced off the lower edge of the long-term GMMA at around 0.72.

The long-term GMMA represents the investors who were steadily buying as indicated by the widely spaced moving average lines. It formed a stable foundation, increasing the probability of a bounce occurring.

A position on SS1 was opened.

🎯 Target Profit 0.97

❇️ Entry at 0.81 as marked by arrow (see chart below)

🛑 Stop Loss at ATR 0.66

Monitoring Price

Checking the price of the stock at the end of each day is the minimum requirement. We may wish to check intraday movements too given the time. Sometimes good intraday opportunities for profit taking appear, triggered from news announcements, moving price up by double digits. Good momentum means price may move up beyond our target price resulting in unexpected higher gains.

Monitoring the Stop Loss

Knowing where to cut your losses if you’re wrong is important for preserving capital. For most trades I like to use the ATR – Average True Range stop loss indicator. Once a trade moves into profit the ATR becomes a trailing profit stop, moving up as price moves up.

Holding onto a speculative stock in the hope of a future recovery is not ideal. Losses may become larger or capital becomes tied up in a position, reducing the capital available for other trading opportunities.

Monitoring Profit

In a bullish market, momentum may continue and we may prefer to hold on for higher price moves. In a more cautious or bearish environment it may be better to close the position at the target profit price.

Sometimes a stock may not reach our target and start to fall away. It’s often a decision of either

1. Taking the profit after having given back some of it as price fell

2. Stopping out on a trailing profit stop loss with a profit

Holding out for higher price movements prolongs trading risk. Keep in mind the time in the market as a risk factor.

In order to carefully monitor any trade sitting in good profits, I created a basic profit tracking spreadsheet. The highest closing price of each profitable stock is recorded then compared to future closing prices. This record is updated daily and helps keep track of price more closely.

Where a future closing price (CP) is lower than the highest closing price by a predetermined percentage, the spreadsheet calculates and notifies the course of action for a particular trade.

As an example, this is a section of my profit tracking spreadsheet.

For the trade on SS1, the position was closed on achieving the target profit. The exit is marked by the yellow star at 0.99, a little over the original target price of 0.97.

A trader deciding to hold the SS1 trade past the target profit has the opportunity of taking profit at the highest closing price on this chart of 1.08. This involves a little luck and good timing.

A trader who stops out when price closes under the ATR trailing profit line, stops out at 0.91 or lower.

A trader holding all the way down to 0.755 gives back all the profit.

Stocks mentioned on X are a great way of finding new stocks. Combining a proven strategy with strict risk management helps turn speculative hype into a more calculated approach for getting into and out of a profitable trade.

A stock may rally for a short time until momentum drops. Traders start to take money out. We don’t want to keep holding or attempt a buy in a rally about to end. One additional indicator to help decision making is the Money Flow Index - MFI indicator. It tracks money flowing into and out of a stock.

MFI considers both price and volume to determine the "money flow" for each period. The indicator is also known as a volume-weighted Relative Strength Index (RSI). It is particularly useful for trading penny stocks, those low-priced shares under $5.

Money Flow Index Calculation

1. Typical Price (TP)

For each period (day, hour, etc.), calculate the typical price

TP = (High + Low + Close) / 3.

2. Raw Money Flow

Multiply the typical price (TP) by the volume for that period.

Raw Money Flow = TP * Volume.

3. Positive and Negative Money Flow

Determine if the current period's TP is higher or lower than the previous period's TP. If it's higher, the money flow is positive; if it's lower, it's negative.

Sum the positive money flows and the negative money flows separately over a chosen period (typically 14 periods).

4. Money Ratio

Calculate the ratio of the positive money flow to the negative money flow.

Money Ratio = Positive Money Flow / Negative Money Flow.

5. Money Flow Index (MFI)

MFI = 100 - (100 / (1 + Money Ratio))

It is useful as a signal of a change in the market sentiment and how much money is behind a move. Recently I have been observing the MFI, using it as additional confirmation for making any buy or sell decisions.

READING THE MONEY FLOW INDEX

📈📉 Gauging Sentiment

Sentiment signalled by the MFI reflects how much money is spent by traders and investors, not on the number of stocks bought and sold.

⚠️ Above 80 Market is overbought

An overbought signal is not an automatic sell or time to short signal. Sometimes price has a shallow pullback before heading higher again.

Pullbacks may be short or they may be long. Having other technical indicators on the chart helps us form a better overall analysis.

💡 Below 20 market is oversold

This may be a potential buy signal.

A more useful way of using the MFI is through observing the price on the chart vs the direction of the MFI indicator.

📈⬆️ Buying Pressure

· If price is rising and the MFI is rising strongly, it suggests strong buying pressure.

📉⬇️ Selling Pressure

· When price is falling and the MFI is falling, it suggests strong selling pressure.

CONFIRMING THE STRENGTH OF A TREND

Ease in Uptrend

There may be a pause in the uptrend when the MFI rises and price moves sideways.

Another scenario is where price is rising and the MFI is falling. It may signal a weakening of the uptrend and a possible reversal.

Ease in Downtrend

MFI indicator rises while the price moves sideways. Downward momentum is decreasing and easing.

Detecting Trend Reversals

· Bullish divergence - lower low in price and higher low on the MFI

· Bearish Divergence – higher high in price and lower high on the MFI

Better Entries and Exits

A good setup may be further confirmed by the MFI. It’s interesting to see how much money has been flowing into a stock.

This is a chart from a past trade on Antipa Minerals AZY. By placing the MFI onto the chart we notice the MFI bearish divergence where price had made a higher high while the MFI had made a lower high. Price fell from the point of divergence.

Following the pullback, price rejected off the long-term GMMA and showed early signs of turning back up. Long-term investors were supportive of the uptrend as the GMMA lines were well separated. Against the stable foundation of the long-term, the probability was high of a recovery and resumption of the uptrend.

Price broke through resistance at 0.49 and an entry was made on AZY.

🎯 Target Profit 0.60

❇️ Entry at 0.50 as marked by arrow

🛑 Stop Loss at ATR 0.40

At the time of opening this trade I had not considered the MFI. As part of a back testing exercise, I wanted to see the value of the MFI in providing extra information for better decision-making.

Had the MFI been used, an alternative entry point was possible at the same entry price as marked by 2. This was after the MFI indicator fell under 20 into the oversold area and price had hit the lower edge of the long-term GMMA. Price recovered after a bounce off the long-term GMMA while the MFI indicator also began to rise in the same direction.

If the MFI indicator was sitting in the over 80 overbought area, extra caution was needed before opening a position.

Back to the original entry, as marked by the purple arrow, price dipped but did not trigger the ATR stop loss, keeping us in the trade. Price recovered back upwards and the target profit was achieved as marked by the star. The AZY position was closed at 0.60 for a profit of 20%.

After the position was closed, there was a short pullback in price and the MFI indicator. Presumably some profit taking after a good run in such a short number of days. The MFI indicator was not above 80 in the overbought area so it was no surprise to see price resume the uptrend.

Price continued to rise with the MFI touching a little above 80 in the overbought area. As price rose to the high, the MFI declined. Higher prices were not sustainable as money flowed out of the stock. Price eventually followed the MFI downwards. Traders sold off as the short-term GMMA compressed and moved down.

The MFI provided valuable added information to the AZY chart.

There are multiple uses of the MFI indicator. Confirming better entries/exits, identifying buying/selling pressure, spotting trend reversals and being aware of overbought/oversold areas. The MFI reveals the sentiment of the money flow and is a useful confirmation to the trader/investor sentiment reflected in the GMMA.

Stopping out of a trade position too soon is annoying especially when price recovers and resumes its direction after our exit. In certain conditions, analysing and opening a trade from the weekly chart instead of the daily chart may be the preferred option for maximising profit.

Why trade the weekly chart

· Smooths out the price noise of the daily chart. Price volatility is lower

· Less monitoring required. Open of a weekly candle is at the beginning of the week and close of the candle is at the end of the week. There is more time for making decisions

· Reduces false signals by smoothing out price noise signals from the daily chart

· Good for less active trading and taking time back for yourself

· Suitable for longer term position traders, trend traders and other types of trading where positions are held over a period of weeks or months

Trading on the daily chart

· Taking advantage of short-term movements intraday or over a period of days to weeks

· Need discipline for closer monitoring of trades

· Fast decision making required

· Higher price volatility. Stops are positioned closer to price action. May stop out easily

· Suitable for day traders or short-term swing traders

Preferred Environment for Trading from the Weekly Chart

· Market conditions are good with the relevant market index trending up. This leads to the “risk on” behaviour of investors as well as traders. Risk on is an environment where investors/traders are willing to take on more risk in the search for higher returns. Everyone is optimistic about the future

· Weekly chart of the stock is in an uptrend/beginning of an uptrend or shows signs of a breakout to the upside

· Time in the market is an acceptable risk in exchange for the potential of more profit over the coming weeks

· Price triggered the sell signal too often in the past making it hard to stay with an uptrend on the daily chart. The same stop loss indicator may work better on a weekly chart allowing wider price moves up and down without stopping out

· Daily chart shows a good entry setup. Together with a trending weekly chart, the probability of further price movements over the longer-term is increased.

In this article, we will be taking a look at a past trade based on the weekly chart of LRV.

Analysis of the LRV Daily

On the right-hand side of the daily chart of LRV, we saw a major sell off from traders. Short-term GMMA lines had turned downwards towards the long-term GMMA. Price eventually rejected the lower edge of the long-term GMMA and appeared to be making a recovery. Long-term investors were supportive of the general uptrend in place as the exponential moving average lines were well separated and sloping upwards. Based on this information there was a good probability of price heading higher.

Given the favourable market conditions at the time where the XJO was in an uptrend, we had the confidence for taking on more time risk by staying in a trade for longer. We open the weekly chart for further analysis.

LRV Weekly

An uptrend was in place for LRV on the weekly chart. By using the weekly chart, the initial ATR stop loss was 0.40. In comparison, an ATR stop loss on a daily chart set the initial stop loss higher at 0.47. This is a difference of 15%.

Choosing to trade from the weekly chart means placing a stop loss further from price, thereby risking a bigger initial loss compared to a stop loss placed closer to price on the daily chart.

LRV was a good stock candidate as it was in an uptrend on the daily chart as well as the weekly chart.

One stock trending up on two different timeframes increases the probability of price continuing to trend upwards.

A position was opened on LRV.

🎯 Target Profit 0.77

❇️ Entry at 0.59 as marked by arrow

🛑 Stop Loss at ATR 0.40

This trade reached the target profit price of 0.77 twice. As price began to fall away again for the second time, the trade was closed at 0.79 on the candle marked by the star. A profit of 34%.

LRV fell heavily during this particular week, ending down 17% on a closing price of 0.72. This position was closed before the Friday afternoon close, before the weekly candle had finished for the week.

In contrast, Trader A opened a position based on the daily chart, entry as marked by the arrow. We see price initially move up then sell off. Another rally followed though not quite reaching the target of 0.77, eventually selling off again and triggering the ATR stop loss at 0.47. Trader A stopped out a couple of months earlier compared to the weekly chart resulting in a loss of 20%.

Extended time in the market may work for or against us. Depending on our analysis, trading from a weekly chart may keep us in a trade for longer compared to the daily chart. It may prevent early exits leading to losses or reduced profits.

Staying in a profitable trade while price is rising is easy. The challenge is when price pulls back and our profit drops. A trailing stop loss indicator is a useful tool for profit preservation and assessing the potential end of a trend. The trailing stop loss I usually use in my trades is the Traders Average True Range. Traders ATR is not available on all trading platforms so I experimented with using the Chandelier Exit. Its similarity to the Traders ATR made me curious as to what the differences might be and whether they produced similar exits in a trend.

Chandelier Exit

The Chandelier Exit (CE) is a trailing stop loss indicator based on the ATR with an adjustable tolerance for volatility with the use of a ‘Multiplier’

Formula for Long Trades:

Chandelier Exit = Highest High (over N periods) - (ATR * Multiplier)

Charles Le Beau, who created the CE formula recommended a 22 day period as optimal with a multiple of 3 times the ATR. The significance of 22 represents 22 trading days in a month.

Multiplier is a factor typically ranging between 2.5 and 3.5. A common value is 3.

ATR is calculated over a 22 day period.

Substituting into the above formula, the CE for a long trade will look like this:

Chandelier Exit = Highest High (over 22 days) – (ATR (22) *3)

Formula for Short Trades:

Chandelier Exit = Lowest Low (over N periods) + (ATR * Multiplier)

Substituting into the above formula, the CE for a short trade will look like this:

Chandelier Exit = Lowest Low (over 22 days) + (ATR (22) *3)

This is how the CE trade indicator looks on the chart.

The CE line in green trails price as it moves up, shifting the stop loss level higher and protecting profit. Once price breaks down through the green CE line, it indicates weakness in the uptrend. The signal to sell appears and the line becomes a trailing stop loss in red on the short side.

In reverse, once price breaks up through the red line and closes above it, strength in the trend is signalled and the green line starts again.

Adjusting the sensitivity of the CE line is made by changing the multiplier of the ATR. A higher multiplier allows for more volatility before the stop is triggered, while a lower multiplier increases sensitivity. A higher number for the ATR plots the CE line further away from price action resulting in more room for price volatility movement.

Average True Range

An ATR is a volatility indicator measuring the average price volatility of a stock over a specified period. The ATR developed by Welles Wilder measures the average range between high and low prices over a specified period. It shows the average range a security moves within a specific period.

Accounting for volatility, the ATR can be used as a stop loss level adjusting upwards as price continues to trend.

The ATR is commonly calculated as a moving average of 14 periods of the true range.

True range is the greatest of the following:

• Current high minus the current low.

• The absolute value of the current high minus the previous close.

• The absolute value of the current low minus the previous close.

The Traders ATR I use in my trading was developed by Daryl Guppy.

Using a 14 day period, a multiplier of 2 is used, ATR*2. The Traders ATR line only moves up when price moves up whereas the original ATR moves up as well as down alongside price. If price is lower than the previous day the Traders ATR line moves horizontally.

A setting common with many traders is a 14 day period of the true ranges and a multiplier of 2 or 3.

Advantages of the Traders ATR

· The Traders ATR indicator line is placed directly beneath price compared to the standard ATR where the line is opened as another window below the price chart.

· Traders are able to set the starting point for the indicator.

This is how the Traders ATR indicator looks on the chart for a 14 day period with a multiplier of 2.

The Traders ATR line in red trails price as it moves up, shifting the stop loss level higher and protecting profit. Once price closes below the ATR line, the uptrend may be over and the trade is normally closed for a profit.

Stop Loss Exits: Chandelier vs Traders ATR

Reflecting on a past trade where I used the Traders ATR, I was interested in any change of the final trade result had the Chandelier Exit been used instead of the usual Traders ATR.

CU6 CLARITY PHARMACEUTICALS

The area of interest was in the second leg breakout of the uptrend. Investors and traders were buying and supportive of the uptrend in place. Both groups had widely separated exponential moving averages and the gap in between showed the trend strength was strong. There was a high probability of trend continuation.

Position Opened

🎯 Target Profit 5.79

❇️ Entry at 4.45 as marked

🛑 Stop Loss at ATR 3.56

Price hit a closing high of 8.65. From this area, CU6 was sold off and an end of trend was signalled as price closed below the Traders ATR at 6.79.

This trade was held open past the target profit price and eventually closed at 6.34 as marked by the purple arrow. A profit of 42%.

Compare the signal triggered on the CU6 chart using the Chandelier Exit line. The Traders ATR from the previous chart used a 14-day period and multiplier of 2. On the following chart, the CE uses a 22-day period and a multiplier for the ATR of 3.

For this trade, the signal of weakness in trend was signalled at the exact same candle as the original trade.

The difference was a CE line price trigger of 6.55 compared to the Traders ATR line trigger at 6.79. A higher stop loss exit price is closer to price action, resulting in a difference of 3.66% more profit.

Similar results were observed using the Chandelier Exit indicator. It may be considered as an alternative to the Traders ATR in the case where it is not available on a trader’s preferred trading platform. As with every indicator it is not a standalone signal for a buy or a sell. Combining other indicators and any observations from back testing may give a better picture of its suitability in a trading strategy.

Gold has been trending strongly for many months, making it over the 5000 level recently. Some gold stocks followed suit and as the trend continued, some price dips were better buying opportunities than others. Let’s look back to see when the uptrend in gold started to emerge, a few of stocks of interest and where the price of gold might go in the future.

On the weekly chart of gold, the GMMA uptrend began around the start of 2023. Long-term holders began accumulating as the exponential moving averages separated in the long-term group. By July 2023, the short-term traders were in agreement of price as indicated by the compression of the short-term moving averages.

Trader buying activity increased around March 2024. The moving averages expanded out of compression in the short-term group and the widening gap between the short and long-term group indicated good strength in the emerging uptrend. At 3800, price formed a support/resistance level, once broken the gold uptrend continued strongly.

Identifying Buying Opportunities

Not all gold stocks are automatically buying opportunities. Searching for gold stocks trending in line with the gold chart breakout of March 2024 required analysis of each potential stock separately. This is the key to finding better trades.

DEG De Grey Mining – Not every gold chart glitters

A bearish RSI divergence at the beginning of 2023 saw the DEG stock price turn down with traders and investors losing interest as the moving averages compressed in both groups.

Around March 2024 when gold was rising, this stock’s trend continued downwards. This stock was not seen as a high probability trade at the time of the breakout of March 2024.

EVN Evolution Mining – Recognising trend strength

The downtrend of EVN turned around in 2023 at the point of an RSI bullish divergence (labelled at 1). Price made a lower low at the same time the RSI indicator made a slightly higher low.

This was a high-risk entry point as the short-term GMMA was attempting to pass through the long-term GMMA. Although the GMMA did manage to develop into an uptrend, the trend was weak with moving average lines narrowly separated, indicating some agreement in price amongst traders and investors.

Around March 2024, when the gold uptrend became stronger, another RSI bullish divergence (labelled at 2) saw price attempt another push back to a GMMA uptrend order. Price broke resistance at 4.00 and the uptrend became more obvious resulting in a higher probability trade opportunity.

RMS Ramelius Resources – Dips with high probability recovery

RMS ended its downtrend order in March 2023. The uptrend order emerging soon after had a weak foundation as the long-term GMMA lines were narrowly separated. Traders sold down the stock at the beginning of 2024.

By March 2024, a bullish RSI divergence had formed. Price made a higher low while the RSI made a slightly lower low. This price dip presented a buy opportunity, confirmed as price recovered off the lower edge of the long-term GMMA. Traders ended the selloff and the short-term GMMA lines expanded upwards.

Each dip in the trend had a high probability of a bounce based on the foundation of good support from investors as indicated by the well separated moving average lines of the long-term group.

Where is gold heading in 2025?

The weekly gold chart currently shows a strong trend supported by both short-term and long-term holders. Price is in overbought territory, signalled by the green shaded area of the RSI. A pullback to some degree is expected over the short-term.

Predicting how long the gold run will last is hard to do with certainty. Given the seasonality chart of gold, we see price in 2025 (the blue line) following a similar pattern to the previous years of 2023 and 2024.

Gold AUD Seasonality 2023 – 2025

If gold continues its past seasonality pattern, we may see some further rise followed by a pullback for a few months and rising prices again.

No two market crashes happen in exactly the same way. It’s difficult to predict a major crash though the warning signs often flash at us continuously for weeks. Here are some of those warning signs calling for extra caution and to be on high alert for managing our trades.

Trend Break on the Daily Chart

Searching for signs of the bear starts with a market index chart. In this case, the XJO known as the ASX 200, an index of the top 200 Australian stocks on the market.

The index is like a compass pointing in the direction of where the market is headed. Watching the portfolio balances alone will only trigger emotion followed by panic.

On the daily chart of the XJO at the time of writing, the most recent uptrend leg had broken. The short-term GMMA group had passed downwards over the long-term GMMA group as traders sold off their stocks. The long-term moving average lines were compressed, signalling agreement. Any expansion of this group to the downside will reflect the activity of investors who are also joining in the sell off.

Daily charts are closer to price action and reveal the market sentiment on a daily basis.

The problem with daily charts is they contain a lot of price action noise. For a better picture of the long-term, the weekly chart is preferred for a longer-term view. We don’t ignore the daily chart alerts. It serves as an early signal, making us hypervigilant of the potential for the weekly chart to turn down in the same direction.

Stop Losses/Trailing Profit Stops Triggered

My preferred stop loss indicator is the Average True Range ATR line. I use a 2 times ATR allowing a stock’s price to move, up to twice the amount it normally would over one day. Should price close beneath the line it means price has moved outside of normal volatility and indicates the trend has changed.

Obeying a stop loss signal such as the ATR indicator and closing out trades should be seriously considered. Especially when the daily chart has broken its uptrend.

As the index breaks down on the daily, a stop loss indicator such as the ATR may trigger a stop for some stock positions. Closing a trade minimises loss or preserves profit in the case of a trailing profit stop loss.

Taking Profits

For any remaining open trades, I may consider taking profit if the market index is falling not only on the daily index chart but on the weekly index chart too.

A weekly chart like this XJO chart is not a reassuring chart despite the uptrend still in place. The short-term moving averages have rolled over towards the downside.

Profit taking provides some peace of mind when the index is in a state of uncertainty.

Lessons from the GFC and COVID 2020 Market Crashes

In 2008, the XJO weekly chart signalled a change in trend when the short-term GMMA crossed down and over the long-term GMMA group. The uptrend had ended and the downtrend started to develop. It wasn’t a sudden ‘crash’, it was a downtrend lasting many months, where there were opportunities for closing short-term trades along the way. It took over a year to reach the bottom area around 3120.

In 2020, the COVID crash warning signs on the weekly showed the GMMA uptrend ending as the short-term GMMA crossed down through the long-term GMMA. There was enough time to close trades over the next couple of weeks as the downtrend began.

Opportunity Cost of Keeping Trades Open

Holding onto a trading stock through a bear market is not ideal as a trader. We need capital to take on trading opportunities.

How long do bear markets last?

This chart from Bloomberg up until June 2022 showed recovery of the S&P 500 resulting from the GFC crash had been 1009 days. The fastest recovery was 103 days from the COVID crash.

History showed how the COVID recovery was an exception. The wait might be over 1000 days for stocks to recover. It’s a long wait and a long time for capital to be locked up.

A market index like the XJO is useful as a compass for assessing the market’s direction. From the daily and weekly index charts, we are able to extract information and make better trade management decisions on whether to hold, take profits or cut losses.

Reaching our profit target doesn’t necessarily mean the end of a trade. Taking the profit in front of us is not always easy. We may want to wait and watch for further upward momentum, but if the price doesn't move up as expected and starts to fall, we must either take the profit or hold through the volatility. In such situations, an early red flag signal given by the Heikin-Ashi indicator may be useful for confirming the decision to exit over holding the trade position open.

Let’s take a look at this past ASX trade on Black Cat Syndicate – BC8.

Strong Trend Identified

📈 GMMA uptrend was in place where the short-term group was above the long-term group.

🔵 Support from short-term traders was indicated by the widely spaced lines in the short-term GMMA

⬆️ Good support from investors was indicated by the separation of the EMA lines in the long-term GMMA

🔥 Gap between the two groups showed some strength in the uptrend

The weekly chart appeared over extended but a quick check of the daily (not shown) showed price had pulled back in an area where a u turn back to the upside was possible.

Position Opened

🎯 Target Profit 0.72

❇️ Entry at 0.56 marked by arrow

🛑 Stop Loss at ATR 0.42

Tracking the Trade

Price fell after the trade was opened and the u turn didn’t happen until a few weeks later. As long as price did not trigger the trailing ATR stop loss line, the trade remained open.

Entry is marked by the arrow. After a dip to the lower edge of the short-term GMMA, trader selling stopped and trader buying pushed price up for the next few weeks.

Profit Target achieved

On the second last day of the week, the Profit target of 0.72 had been achieved.

My trade plan states waiting for a Friday end of week close before making any decisions to close a trade position based on the weekly.

A change on the daily Heikin-Ashi candle chart made me think again.

On the daily chart, a red Heikin-Ashi candle had formed indicating a change in the trend from up to down.

Noticing a red Heikin-Ashi candle form on the daily chart was a red flag alert. Heikin-Ashi red candles represent a downtrend while green candles represent an uptrend. Zooming in on the daily for extra information and seeing the trend change was a signal for seriously considering closing the trade.

Instead of holding on for the next week a decision was made towards the end of Friday’s session to lock in the profit.

Closing Position

Based on this information, the trade was closed at 0.725 as marked by the star.

Post Trade

The day after the position was closed, more red Heikin-Ashi candles followed. Price continued to fall to an intraday low of 0.55 on the daily chart. Back to the original entry price. Traders continued selling down the stock and the short-term group turned downwards, passing over the long-term group. The uptrend was almost broken but managed to stay intact. Price consolidated and moved sideways.

Back to the weekly chart, we see the drop from the high of 0.76 to the low of 0.55. Giving back 28% of the original profit target of 30% was a hard to stomach ride down for any trader.

Overall, the uptrend in place was still strong and the gap between the 2 groups signalled a strong uptrend. For any traders still on the rollercoaster of BC8 there was another opportunity to ride another potential leg up again.

A trending stock you have been stalking drops in price. It’s exciting and seems like a great opportunity but is it really? There is one particular technical indicator I like to use as a reality check. It zooms in on price action, showing where price is likely to head over the shorter-term.

Heikin-Ashi Indicator

This trend indicator is a useful tool for identifying specific trend changing candles on a chart.

Heikin-Ashi means average bar in Japanese. A Heikin-Ashi candle looks very similar to the traditional Japanese candle charts most readers are used to. The traditional Japanese candles use actual price to plot the open, close, high and low of each candle while Heikin-Ashi candles use an average of price from previous sessions to plot the open, close, high and low of each candle. By using average price, volatility is smoothed out and false signals are avoided, particularly when it comes to identifying trend.

Signs of a turning point, occur when a particular candle changes colour from red to green for the upside or green to red for the downside.

Positive Criteria for a Potential Bounce include:

1. GMMA uptrend in place

2. Investors are supportive as indicated by the widely separated long-term exponential moving averages in the long-term GMMA

3. Pullback to the lower edge of the short-term GMMA or upper/lower edge of the long-term GMMA. They are often good areas to look for a price bounce

📈🔴CHART 1

Findi Limited - FND met all the criteria mentioned above for a potential bounce. The price pullback was a significant one where price ended the day down 23.7%. It seemed like a good time to buy but we needed to assess if price had further to fall. This is the method I used for deciding if this was a falling knife or a stock to watch for a good entry.

The lower edge of the long-term GMMA appeared to be a good place for a price bounce.

Alongside the price fall, the short-term GMMA had compressed and turned downwards. Traders were selling down the stock.

In order to analyse the price action further, the standard candlestick chart was changed to a Heikin-Ashi candlestick chart.

Fake Opportunities

On the FND Heikin-Ashi candlestick chart, Heikin-Ashi candle number 1 had turned red on the day of the dramatic fall. The trend according to the Heikin-Ashi indicator had changed from an uptrend into a downtrend.

Candle number 2 was the first green candle on the standard candlestick chart (not shown) but was red on the Heikin-Ashi candlestick chart. A row of red candles indicated a downtrend in place. The downtrend was confirmed further as the short-term GMMA passed down through the long-term GMMA, breaking the uptrend order.

At this point on the chart, price behaviour seemed more like a falling knife than a potential bounce.

📈🟢CHART 2

On the chart of James Bay Minerals - JBY we identify the 3 positive criteria points for a potential bounce – GMMA uptrend, widely separated exponential moving average lines in the long-term group and a pullback to the upper edge of the long-term GMMA as marked by the arrow.

Looking at the area of the bounce how do we know this is a high probable bounce and not a falling knife? Overlaying the Heikin-Ashi candles onto the chart gives us further clues.

On the day of consideration, marked by the arrow, the Heikin-Ashi candle had turned green and over the next day another green candle formed. Price doesn’t immediately take off but it doesn’t fall further. The long-term GMMA group was well supported by investors and provided a good foundation for the GMMA uptrend. Price eventually moved upwards as the short-term GMMA lines expanded out from compression.

The Heikin-Ashi indicator is not a stand-alone indicator. Once a positive signal is identified, we still need to confirm the direction of price with other technical indicators. It’s a good starting point when making an entry decision after a pullback in price.

Packing for Japan was easy. Passport, money, clothes, toiletries and two open stock positions. Thinking it was a manageable number of trades to leave open, all I needed was access to prices and basic charts on my phone.

My trading plan tells me to close all trading positions before a holiday or bring a laptop and be prepared to monitor them. Checking in on each stock wasn’t going to take much time but I didn’t bring the laptop. Mistake number one.

Trading Positions

Two trading stocks were still open in the portfolio.

Trade 1 - CYL CATALYST METALS LIMITED

CYL had a strong trending chart. Investors were in full support as indicated by the widely spaced exponential moving averages, providing a solid foundation for high probability recoveries on any price pullbacks.

Open Position

🛑 Stop Loss at ATR 1.98

❇️ Entry at 2.18

🎯 Target Profit 2.61

Tracking the Trade

Price rose after the entry as marked by the purple arrow.

🎯✅ Target Profit Achieved

After a short time of sideways consolidation, CYL achieved the target profit set for a 20% profit return.

The uptrend for CYL appeared strong so the trade was left open.

✈️ Holiday Mode ON

Bad timing saw the price of CYL drop sharply the day after I left for my holiday.

Walking 20K steps a day and always on the go from morning until night was exciting, exhausting and not an ideal state of mind for remembering to check trades properly.

Closing Position

One of the limiting factors for not checking properly was leaving the laptop behind. The mobile did not display the usual trailing ATR stop loss indicator. Changing to an alternative stop loss signal for this trip, that of a certain percentage drop in profit, was harder to track.

CYL was closed after I returned from holidays at $2.64, marked by the orange star on the chart. Only a little over the original profit target.

Post Trade Analysis

These were the alternative actions for managing the CYL trade:

1. Close trade before holiday

Sell at $3.50 for a profit return of 60%

2. Close trade during holiday

Sell at $3.00 for a profit return of 38%

Trade 2 - RMS RAMELIUS RESOURCES LIMITED

A new uptrend leg had broken out and was well supported by both traders and investors. The gap between the short and long-term GMMA groups signalled good buying strength in the trend.

Open Position

🛑 Stop Loss at ATR 2.08

❇️ Entry at 2.18

🎯 Target Profit 2.40

🎯✅ Profit Target Achieved

The ATR trailing profit stop was compatible with the price dips on the chart allowing the trade to remain open. Profit target of $2.40 was achieved and the trade was left open to allow profits to run some more, past the guaranteed profit of 10%.

✈️ Holiday Mode ON

Price dropped the day after my holiday started. Failing to check on price and close the trade while on holiday saw price continually drop past the stop loss of $2.32.

Closing Position

RMS was closed after I returned from holidays at $1.97, marked by the orange star on the chart. Closed at a loss of 10%.

Post Trade Analysis

These were the alternative actions for managing the RMS trade:

Close trade before holiday

1. Sell at $2.36 for a profit return of 8%

Price activity was close to triggering the ATR stop line for a few days before departure with the potential of price to drop and close beneath at any time. Another warning signal was the compression of the exponential moving average lines of the short-term group. Traders were losing interest.

Close trade during holiday

2. Sell at $2.15 for a loss of 1.4%

Making the Decision to Close or Monitor

Based on previous experience, if a holiday is a familiar regular routine one, monitoring is easier. For a more active holiday, it becomes a lot harder to focus.

Closing positions may be the better option for a complete break away from the markets. Locking in the profit or limiting a loss.

Better Monitoring of Open Positions

One or more of the following ideas may be helpful

1. Take partial profits before heading off

2. Pack in the laptop

3. Full chart access to indicators for proper analysis

4. Set price alerts signalling weakness in the share price

5. Set automatic or conditional stop losses on the trading platform

6. Know the exact stop loss price for exiting

In hindsight, closing both of these trades before the start of the holiday was the better strategy. A guaranteed profit in the bank and a mind free from baggage. Close positions or leave positions open. We can’t always get it right so we prepare to accept the consequences of our choices.

Over the last few weeks, buying silver stocks had everyone talking. On one particular day, many silver stocks gapped up on the open and closed the day on double digit percentage rises. For those already holding it’s a big bonus. For those still on the sidelines it might be better to look for entry opportunities at a later date.

Some wise shoppers like to apply a 7 day rule for purchasing an item. It means waiting for one week before deciding to buy. It’s a guard against impulse buying and getting caught up in the high of the moment. For stocks fuelled by impressive price movements, I also like to wait before making a buy decision.

Before clicking the buy button, look out for these 2 chart scenarios where price has a higher probability of pulling back. Delaying the buy decision may lead to better entry areas at a later date.

1.    Spike day

This is the type of day triggering a FOMO reaction from the market. Price climbs higher as traders pile in. A double digit one day percentage rise, especially one with a gap up is automatically a red flag for me.

📈⚠️ Price of SS1 spiked 23.08%

📈⚠️ Price of USL on the same day gapped and ended the day up 15.8%

📈⚠️ Price of ASL gapped up, ending the day up 7.8%

These areas of the chart are not ideal entry points. Joining in the bidding frenzy increases the risk of buying at the top.

🚩 Spikes in price like this are prone to a drop

2.    Established trend leg

If an uptrend leg has already developed, price may pullback at any time. Especially in an existing GMMA uptrend where traders/investor buying is strong, signalled by the widely separated exponential moving averages of the GMMA groups.

On the charts of USL, SS1 and ASL, the investor foundation of the uptrend had been strong.

Any future sell off or pullback in price has a high probability of becoming a temporary pullback before resumption of the dominant uptrend.

🚩 We may have missed most of the move for the current leg but there is potential for another opportunity should a pullback occur within the ongoing uptrend.

WAITING FOR A CONFIRMATION BOUNCE

We like to see price pull back and reject either of the

-       Lower edge of short-term GMMA

-       Upper edge of long-term GMMA

A focus on the last candle of the SS1, USL and ASL charts showed early signs of rejection and a potential turnaround. Price was starting to rise again.

Price of SS1 up 10.5%

Price of USL up 8.2%

Price of ASL up 4.4%

🚩 Always err on the side of caution as price approaches the lower edge of the short-term GMMA or the upper edge of the long-term GMMA. Rejection of the GMMA area should be confirmed by other technical indicators before entering into a position.

Stops losses are essential for capital protection, particularly against the possibility of price falling through the short-term or long-term GMMA group.

On the charts of SS1, USL and ASL, price reached a high before making its expected price retracement. At the time of writing, this retracement area on the chart was better for a lower priced entry than at the time of the frenzied buying. A preferred result from holding back, letting emotions fade and the frenzy pass.

Sorting out rough opal stones by natural colour is best done visually on a silver or white tray. Black trays boost the colour artificially. For any list of stocks, clicking through each chart is also an eyeballing process. Experience over many years helps make separating the ‘good setups’ from the ‘stocks to avoid’ an easier task. These are some of the features I watch out for in the early sorting stages of my search for a good stock.

Stocks to Avoid

LOWER PROBABILITY SETUPS

🔴⚠️ Lack of Trader/Investor Interest

Compressed moving averages in the short-term and long-term GMMA shows a lack of interest from traders and investors.

Price had been going sideways for a couple of weeks on the chart of GHY as traders and investors were in agreement in price.

🔴⚠️ Resistance Levels
Support/resistance levels may prevent price achieving our profit targets.

On the chart of LOT, opening a position at this point may encounter resistance at 0.38 and price may not reach a profit target set over this price.

🔴⚠️   Low Trading Activity

Price is too spotty with no trade days or is too boxy. It is harder to fill entry and exit positions. In the chart of AAU, price action shows both types of trading days. There are no signs of any price breakouts while price is in a sideways consolidation.

🔴⚠️   Steep Price Action

Fast move where the GMMA groups are sloping steeply upwards. There is a risk of collapse in price.

The chart of MTH is an example of a chart I prefer to avoid trading. Next day, price went on to a high of 0.185 then fell over a couple of weeks to a low of 0.433. A drop of 134%!

Another example of a steep price rise is on the chart of C1X, price is printing steeply and the GMMA is rising in a steep slope. On the last candle printed, price touched the high of this chart at 0.685 then fell over the next 10 days to 0.325.

🔴⚠️  Ballooning

Ballooning of GMMA lines. If the exponential moving averages are too widely separated or the gap between the short and long-term groups is too wide, the trend is not sustainable and price usually cannot keep its momentum. Price eventually pulls back.

🔴⚠️  Weak Long-Term GMMA

If the long-term GMMA is too compressed despite an uptrend order, it means lack of support from investors and will most likely not provide a strong foundation for any short-term pullbacks in price.

On the chart of AGE, the uptrend leg emerging during May was weak, failing to develop as the short-term group fell through the compressed long-term group.

🔴⚠️ One Day Spike

A double digit price move over one trading session is exciting. First response is often FOMO, especially when the stock has been in an uptrend. A better first response is one of caution, knowing the probability of price pulling back over the next couple of sessions is high.

On the CTT chart, price moved 79% in one day. Over the next few days, the stock gave back at least 20% of this move. It’s not a good entry point.

🔴⚠️ GMMA in Downtrend Order

Never a good idea to trade against a dominant trend.

On the chart of WBT, the GMMA groups are in a downtrend order. Both traders and investors were selling the stock off over time. Price made a number of unsuccessful attempts to break through the long-term GMMA but the investor selling was too strong and price fell back.

A chart may have one or more of the features in this article providing a clearer picture of the stock. This is the initial interest stage of eyeballing and separating out the higher probability set ups in the charts. For further analysis, other indicators such as RSI, ROC or Heikin-Ashi candles may be applied over the chart for added confirmation of trade potential.

For Part 1 of the Good Chart Bad Chart Guide containing the Higher Probability Chart setups click here

Good Chart Bad Chart Part 1

Sorting out rough opal stones by natural colour is best done visually on a silver or white tray. Black trays boost the colour artificially. For any list of stocks, clicking through each chart is also an eyeballing process. Experience over many years helps make separating the ‘good setups’ from the ‘stocks to avoid’ an easier task. These are some of the features I watch out for in the early stages of my search for a good stock.

HIGHER PROBABILITY SETUPS

🟢📈 Uptrend

The chart below is a great looking steady uptrend. Strength of the trend is shown where the exponential moving averages are well separated in both the short-term and long-term GMMA. A steady uptrend is more likely to hold up and less prone to a sudden collapse.

Match an uptrend on a daily chart with an uptrend on a weekly chart for double confirmation of an uptrend continuation.

🟢📈 Trendline breakout

A break through a downtrend line and a price close above the line has the potential to continue. On the chart of DXB, the bounce off the lower edge of a supportive long-term GMMA adds to evidence of a potential turnaround in price.

🟢📈 Trendline Retest

Strong trendlines where price has hit and retested the line at least 3 times. The more hits by price on the trendline, the stronger the trendline and a more stable price move.

The new leg emerging on the chart of VCX was a good example of using a trendline to open a position in the first few days of a new leg emerging in the uptrend.

🟢📈 Regular Price Activity

We want regular trading and higher volumes. It is obvious to the eye when a stock is traded frequently like this chart of SUM. Price activity flows more naturally and it appears regular.

Check for volume levels using an indicator or looking at data on a website or trading platform.

🟢📈 Widely separated Exponential Moving Averages of long-term GMMA

Pullback in price against a supportive long-term GMMA increases the likelihood of price recovery back to the upside. Widely separated Exponential Moving Averages signal how investors are in good support of the trend and are buying the stock.

On the very right side of the chart CYL, the most recent price pulled back towards the upper edge of the long-term GMMA. From this area, price made a 55% move from $1.80 to $2.80 a couple of weeks later.

🟢📈 Bullish RSI Divergence

When price makes a lower low at the same time a momentum indicator like the RSI makes a higher low, there is a possibility of price moving to the upside. It is not a standalone signal. Other indicators should be used for confirming the potential move.

An existing GMMA uptrend increases the probability of an upward move playing out. A stock showing early signals of a trend change also increases the probability.

Price made a nice move after the RSI divergence on the chart of MIN. The day after the current candle on the very right side of this chart, price spiked up 14%.

Part 2 of this article takes a closer look at some Lower Probability Setups. Click here to read

Good Chart Bad Chart part 2

The average human mind has over 60 000 thoughts a day. According to Stanford University research 90% of these are repetitive. Imagine all our thoughts on trading getting lost amongst all of this. It’s a good reason for collating and converting our best thoughts into a written trading plan. Having all the basics already on file, I recently decided to make the plan even more detailed and share it.

Why write out a trading plan?

Trading plans are a great tool for decision making. It can’t cover every single scenario but it’s useful as a reference point. It’s a great personal guide for making our own decisions and better than acting on our emotions or on other people’s opinions. We don’t want suboptimal decisions made in a state of panic or confusion.

With some ideas from Guppy’s Tutorials in Technical Analysis newsletters, I filled out some missing pieces of my trading plan. The revised edition of the trading plan covered many aspects of the trade process from scanning for entries to reasons to exit.

This trading plan is not meant to be an all-inclusive template for readers. Rather, used as a resource, there may be some ideas of interest useful for adding into your own trading plan.

TEST CHOSEN INDICATORS IN CURRENT MARKET

Determine the compatibility of the current market with the short-term strategy.

Back testing over a period of a few weeks back has been enough to make observations on whether any indicators are working or not working in line with expected results. Observe any false entry or exit signals when an indicator is applied to a stock.

CREATE A LIST OF INTERESTING STOCKS

🗓 Check for new 52 week highs

🧐 Scan for stocks using MetaStock · EzyAnalyser

Research stocks mentioned in emails, webinars and conferences

Quick scroll through social media

SORTING OUT THE LIST

Avoid low volume, low liquidity stocks making it harder to enter and exit positions.

Any stock in an existing uptrend or starting to break out is a potential trade.

Remaining stocks not meeting initial criteria are placed into one of the following watchlists for further observation:

-        Potential breakouts from a trendline

-        Pullback in price towards lower edge of short-term GMMA against a solid well separated long-term GMMA

-        Potential bottom forming. Use of Rate of Change (ROC), Relative Strength Index (RSI) indicators, price and chart patterns

TRADES TO AVOID ⛔️

This is part of risk management. Preserving capital by lowering the probability of entering into a failed trade.

-        Stocks moving nowhere for weeks or months

-        Stocks in downtrends

-        Trading against the dominant trend

-        End of trend behaviour

ENTRY SETUPS ⭐️

In addition to the traditional GMMA trend trades and GMMA breakouts these are some other movements I look for:

-        ATR x 1 short Traders ATR crosses over the long Traders ATR

-        ROC move over 0 line

-        Trendline break

-        Trading band breakout

-        Trend trade bounce opportunity following a rally collapse. A stock with widely separated exponential moving average lines in the long-term GMMA provides a strong base and the uptrend is most likely to continue.

Beware of any upcoming dividend payments. Price may gap down on the day of payment by the value of the dividend. This reflects the outgoing capital.

GOOD CHARTS 📈

The more features the higher probability of further price rises:

-        Steady uptrend. Exponential moving averages are well separated and the short-term and long-term GMMA are in uptrend order

-        Strong upward sloping trendlines where price has hit and retested the line at least 3 times

-        Support/resistance levels providing protection from big price falls

NOT SO GOOD CHARTS 🚩

Any of the following may be red flags:

-        Price is too spotty with no trade days or too boxy. It is harder to fill entry and exit positions.

-        Fast moves where the GMMA groups are sloping very steeply upwards. There is a risk of collapse in price.

-        Ballooning of GMMA where exponential moving averages are too widely separated or the gap between the short and long-term groups is too wide. Trend is not sustainable in the short-term and price often loses momentum and eventually pulls back.

-        Long-term GMMA is too compressed despite GMMA groups in an uptrend order. Lack of support from investors does not provide a strong foundation for short-term pullbacks in price.

-        Be aware of support/resistance levels obstructing price from achieving a profit target.

RISK

Potential loss is no more than 1% to 2% of total capital including cash.

Risk/reward is at least 1 to 1. Risk $1 to gain a Reward of $1

SETTING PROFIT TARGETS 🎯

There are many ways of setting a profit target

-        Defined percentage return target of around 10% - 30%. One downside is there may be further price moves up, resulting in missed profit. On the upside, profit is banked in and the shorter time in the market eliminates the risk of sudden collapses or profit erosion.

-        Using patterns on the chart for measuring targets:

Double bottom - Measure distance from bottom to top of current price action and project upwards from the top of price action to define profit target.

Equilateral triangle - breakout to the upside. Measure the base and project upwards for a target.

Breakout from a trading band - use the height of the trading band and add to top of trading band for a profit target level.

STOP LOSSES

One stop loss or a combination of the following:

-        Traders ATR, Countback Line CBL or uptrend line. These are good trailing stop losses moving alongside price as price moves up.

-        Support/resistance levels

CHECKING DAILY CHART TRADES

For short-term trading:

-        Check after end of day close and take any required action the next day.

-        Depending on time, check once during the day out of interest. If unusual volatility and price drops through a stop loss, consider closing during the day to cap losses without waiting for market to close. Conversely, consider closing a trade during the day if a spike up results in a windfall profit.

-        For any after market close on the borderline of a stop loss, watch next day market open and make a decision. If price action has been fairly steady then a watch and see approach is ok. If volatility has been a feature, close position over the next day.

CHECKING WEEKLY CHART TRADES

For longer-term trading:

-        Check trades at the end of week, after Friday close and take action next week on the Monday.

-        Resist the temptation of closing out a position triggering a weekly stop loss during the week. Weekly candle is not complete until the end of day close on Friday. Price may close back up above the stop loss level by the end of the week. We may regret not obeying trading plan rules.

-        If unusual volatility due to news consider closing during the week without waiting for end of week to close. Maybe capture a spike up resulting in windfall profit or a spike down resulting in a trigger of a stop loss.

-        For any Friday market close on the borderline of a stop loss, watch Monday’s market open and make a decision. Depends on the price action up to this point. If fairly steady then a watch and see approach is ok. If volatility has been a feature close the position on Monday.

TRADE MANAGEMENT OF OPEN PROFIT

Depending on the criteria for entering:

-        Close any trades reaching profit target, triggering a stop loss or a trailing profit stop.

-        Trendline management - uptrend is in place for as long as price remains above the trendline. Close below the line signals a potential change in the uptrend.

-        Dynamic trendline – a good uptrend may require a new trendline as price action moves away from the line. Placement of a new trendline may become steeper. Steepness of slope indicates the current trend is unsustainable. It triggers a signal for profit taking. Waiting for price to fall back to the original trendline gives back much of the profit.

Other factors for consideration:

-        Gap distance between short and long-term GMMA groups signals strength. Beware of too much distance producing a balloon effect. Like an overstretched elastic band it eventually will snap back.

- Identify additional profit targets for protecting profit in a good uptrend once the first target has been achieved. Exit taken near the first target if price moves below the first target level. Tighten stop losses as price moves above the first target level.

-       Bullish environment – ride momentum back towards the highs after a pullback

-        Price spikes - price surge when a whole bar is greatly above the price activity. Consider capturing profit as price surge often ends in price falling back to normal or worse.

Missing the profit target and not getting filled or price just touches intraday before pulling away. Minimise profit erosion by calculating interim stop losses based on support/resistance for example. Watch for signs of any price rally again to the target.

EXITING BEFORE TARGETS AND STOP LOSSES

Warning signs:

-        If price is directionless for too long consider closing the trade because there is no profit delivered by the loss of momentum. Extra time will not change the outcome.

-        Sideways consolidation, not getting result or breakout hoped for.

-        Any price move below the lower edge of the short-term GMMA is an exit warning. Any price move below the lower edge of the long-term GMMA is even worse!

TRADING ADMINISTRATION

Remove the following type of charts from Watchlists:

-        Failed breakouts

-        Setup no longer showing any potential. For example, short-term GMMA has compressed as traders lost interest and have stopped buying the stock.

-        Stock entered into a downtrend

Once a stock position has been opened:

-        File the stock chart under either short-term (daily chart), long-term (weekly chart) , specs or long-term hold (monthly)

-        Record in trading journal

-        Open confirmation emails and enter trade details into a spreadsheet

-        File confirmation emails

-        Create new alerts on trading platform for price triggers and company announcements

Once a stock position has been closed:

-        Record in trading journal

-        Remove the chart from short-term, long-term, specs or long-term hold files

-        Open confirmation of sell emails and enter details into the spreadsheet

-        File confirmation emails

-        Delete alerts for price triggers and company announcements on trading platform

HOLIDAYS 🏝

Close all trades before leaving or pack the laptop in order to manage open trades over the holiday period.

UPDATE TRADING PLAN AS NECESSARY

Over the trading year we may need to add to or subtract from our trading plan. Sometimes parts of it don’t work and we need to remove it. It becomes more obvious the trading plan is incomplete when we refer to it for guidance and find the issue hasn’t been addressed. Writing it down is highly recommended or else it becomes lost amongst those 60 000 thoughts we have every day.

Share

This week I attended a session at the RIU Resources Roundup Conference. Every presentation was interesting and every project seemed like a good buy. The only way to sort out the better opportunities as a trader was to go home and open up the charts. Adding a good trend indicator revealed where the traders and investors were buying and placing their money.

Stocks mentioned in a mining conference make a great list as a starting point for any strategy. This is the process used to highlight the stocks with potential for short-term trading.

Trend Indicator

The GMMA indicator was used, making it easy to find an uptrend, defined as when the short-term group GMMA sits above the long-term group GMMA. Finding widely separated exponential moving average (EMA) lines in either group shows there is good support from traders or investors or both. It represents good buying activity in the stock.  Any wide gap between the trader group and investor group is a bonus and confirms the uptrend is strong.

16 presentations 16 stock codes

Eyeballing each of the stocks on a chart enabled me to see quickly, based on the GMMA indicator , whether the stock was in a general uptrend or downtrend.

Selecting the charts of stocks in an uptrend was the first step in the culling process.

Symbols for trend direction

📈 Uptrend

📉 Downtrend

🛑 No trend

Here are the trend directions for these ASX stocks, taken from the presentations:

** Based on daily charts at the time of writing

Most of the charts were disappointing. Only 5 stocks out of 16 were worth looking further into from a trend trading point of view.

Shortlist of Charts

📈 FRB

The daily chart of FRB revealed an uptrend well supported by traders and investors. A strong trend was confirmed by the wide gap between the short-term GMMA and long-term GMMA. Interest in the stock was high as both groups have been buying and pushing the share price up.

📈 IPT

IPT ticked all the boxes of a strong uptrend on the daily chart.

✅ widely separated EMA lines

✅ wide gap between the trader group and the investor group

The daily volume of this stock was high, providing good liquidity and turnover for traders.

📈 MZZ  

MZZ was in an established uptrend on the daily chart, though some caution was required as traders had lost interest. After a recent sell off, price fell and the short-term GMMA turned downwards. More recent activity revealed traders had lost interest. Price travelled sideways and the short-term EMA lines were compressed indicating an agreement on price. Investors were still showing good support.

📈 SRZ  

The daily chart of SRZ had been in a GMMA uptrend for a couple of months. Traders sold down the stock recently as the short-term GMMA turned downwards. Price had been bouncing along the upper edge of the long-term GMMA without breaking the uptrend. The investors were still in the stock.

📈 TLM

TLM was well supported by the traders and investors on the daily chart. The GMMA indicator showed an uptrend. After a previous sell off down in April to the upper edge of the long-term GMMA, price bounced and traders entered in once again, buying up the stock. A new leg in the trend had emerged.

Mining conferences attract investors with a view to holding stocks over a much longer timeframe. Traders also benefit from a concentrated pool of stock ideas. By using technical analysis tools like the GMMA, we were able to shortlist the more promising trending stocks. Additional indicators may then be used for further analysis to identify potential entry and profit targets. Mining conferences offer value for both investors and traders.

Before stepping onto a pedestrian crossing, we make an estimate of the speed of an oncoming car. It may be unsafe if there is no change in its speed as it gets closer. Just like assessing the speed of the approaching car, we need a way of assessing the speed of how price is changing on stocks. A momentum indicator like the Rate of Change indicator (ROC) can help us gauge the speed of price and the likelihood of price continuing in the same direction or turning against us.

Starting with Trend Direction

The first thought after we identify a trend or breakout is probably on how much more the price will move up. Spotting a general trend direction using a trend indicator like the GMMA is often a simple observation. Identifying the potential for further movements in price, price reversals and tops or bottoms is a little bit trickier. We need additional indicators.

Using a momentum indicator like the Rate of Change indicator (ROC) may help gauge the speed of price and the likelihood of price continuing in the same direction.

Rate of Change ROC

The Rate of Change (ROC) indicator is a price based momentum oscillator used in short-term trading to gauge the speed and direction of price movements. It reflects a change in price momentum and is a warning sign of a change in direction before it happens on the price chart.

Momentum is a rate of change of price.

The ROC formula is as follows:

For a 14 day ROC, the formula looks like this:

ROC = [(Today's Close Price – Close Price from 14 days ago) / Close Price from 14 days ago] x 100

Most trading platforms have the ROC indicator.

One of the first considerations in using the indicator is setting the “n” value. The number of periods ago compared to the current price.

Time Values and Timeframes

Consider these suggested “n” values depending on the timeframe we wish to measure.

Any value for “n” may be inserted depending on the period you wish to measure. Keeping in mind the lower the “n” value the quicker the response to price changes.

Some view the “n” value of 200 as too slow for investors. Play around with the values to suit your situation.

READING THE ROC SIGNALS

The ROC signal line is set at 0

ROC line crossing above the signal line → bullish. Potential buy signal.

ROC line falling below the signal line → bearish. Potential sell signal.

ROC hovering around the signal line at 0. Price is consolidating.

Rising ROC line in an Uptrend

• A rising ROC line suggests an upward trend is gaining momentum. Buying pressure is strong and prices are accelerating upwards, indicating potential buying opportunities for short-term traders.

• A very high ROC might indicate the asset is overbought in the short term. The definition of overbought is determined by the individual trader, varying according to a particular stock’s characteristics.

• Keep in mind the risks and volatility of a strong uptrend as it may be due for a correction or a consolidation.

Falling ROC line in an Uptrend

• A falling ROC line suggests an uptrend is losing momentum. The uptrend is weakening. There is a possibility of a short-term pullback in price within the uptrend.

• If price makes higher highs while the ROC makes lower highs then a bearish divergence may indicate a future trend reversal.

Falling ROC line in a Downtrend

• A falling ROC line suggests a downtrend is losing momentum. Prices are accelerating downwards, indicating potential selling opportunities for short-term traders.

• A very low ROC might indicate the asset is oversold in the short term, and a price bounce could be coming.

Rising ROC line in a Downtrend        

• Sometimes this may signal a weakening downtrend. Selling pressure slows down and may lead to a short-term bounce.

• If price makes lower lows while the ROC makes higher lows then a bullish divergence may indicate a future trend reversal. The downtrend may be losing momentum.

Chart Analysis

Using the following daily chart of WA1 Resources Ltd – WA1 we demonstrate how to read the GMMA trend indicator together with the ROC indicator. In this example “n” is set at 9.

Starting at the left side, the GMMA indicator shows no trend. Compressed exponential moving average lines in both groups reflects an agreement in price from traders and investors. The ROC indicator below price, hovers around the zero line. Price is consolidating and there is no momentum.

Band 1

Once price begins to move together with expansion in the short-term GMMA and long-term GMMA groups, the ROC rises above the zero line. Momentum is increasing as traders and investors increase their buying activity. The lines in both groups separate out reflecting the strength of the trend.

From the peak in band 1, price starts to decline. The ROC turns down as momentum eases, serving as a warning signal of the breakout losing acceleration.

Band 2

Traders lose interest, the short-term GMMA group compresses and the ROC rose briefly above the zero line. Not an ideal set up combination for a good breakout.

Band 3

ROC rises above the zero line and trader buying increases again as reflected in the short-term group. The expansion of the lines in the short-term GMMA are a stronger breakout signal when paired with the rising ROC above zero.

Notice the bearish divergence as price made a higher high, the ROC indicator made a lower high. Price began its decline with traders selling off the stock. The short-term GMMA turned downwards and the slowing momentum of the breakout reflected in the ROC line also turning down.

A short-lived breakout opportunity occurred in the area between band 3 and band 4. It’s always a good idea to have a plan in place for stop losses and profit protection in the event of price retracement.

Band 4

ROC line rose above zero in line with the expansion of the short-term GMMA and long-term GMMA groups. The exponential moving average lines of each group separated out and upwards as traders and investors increased buying and support of the stock. This combination shows a strong breakout occurring as the ROC signalled price accelerating upwards.

The ROC is not a standalone indicator. Paired with GMMA breakouts and trends, it adds further evidence on whether price has strong momentum, slowing momentum or facing a potential change in direction. Gaining this extra advantage helps us stay out of the trades where breakouts and trends are on the low probability side of continuing into the future.

Stop losses should generally be obeyed. In theory it works logically like this – the stop loss is triggered then over the next session the position is closed. In borderline cases where a trend is fairly stable, I sometimes use trader discretion and stay in the trade. 

Checking a carton of eggs for any broken ones before leaving the supermarket takes only seconds. Some people do it and some don’t. I definitely do, picking every egg up carefully for inspection. A recent trade required the same level of monitoring each and every day, in case the trade was about to crack and fall apart.

Alligator Energy Ltd – AGE was a stock found on a routine scan of daily charts. Focusing on the right-hand side of the chart, a recent sell down by traders saw price touch the lower edge of the long-term GMMA without falling through it.

Resistance at 0.057

Traders pushed price back up towards the resistance at 0.057. The short-term GMMA had started to expand out and upwards. A small breakout was emerging against a background of strong support by investors as indicated by the widely separated moving averages.

Position Opened

This analysis was made the night before. The next day price broke though the resistance level of 0.057 and an entry was made at 0.06 with an initial ATR stop loss at 0.051 and a profit target of 0.072.

Failed Breakout

Not every breakout continues and this was one of them. After price broke through 0.057, it turned back down away from the entry and closed below the 0.057 level again. The lines of the short-term GMMA compressed and changed direction downwards. Traders sold the stock down to the lower edge of the long-term GMMA once more as marked by the purple arrow.

Stop Loss Triggered

Price triggered the trailing ATR stop loss line at 0.0525, closing just below. A trigger of the ATR stop loss usually signals the potential for a trend change in the future. In the case of a borderline close around the ATR line I monitor the next session’s open for signs of price recovery. If price moves back up then the trade remains open.

The next day price traded above the 0.0525, closing above it again. In this situation where price was back over the ATR line, I used trader discretion to keep the position open on the condition of carefully watching price over the next few days.

GMMA Trend Order Continues

Price recovered from the one day close below the ATR stop loss level of 0.0525. The short-term group bounced off the lower edge of the long-term GMMA as traders showed interest once again with buying pushing prices up from the area of the purple arrow.

Recalculating the Stop Loss

Remaining in the trade required another stop loss. A new stop loss of 0.049 was recalculated from the triggered candle marked by the purple arrow. An alternative method was used – the Count Back Line, CBL stop loss. The CBL stop loss indicator tends to follow price closer than a recalculated ATR. Resetting the ATR line indicator is equally valid for setting a new stop loss.

Resistance at 0.068

Price made a third attempt to break resistance at 0.068. Eventually price did, closing above 0.068. This was followed by a nice big gap up where price passed my target profit price of 0.072. The profit target was achieved as marked by the orange star and the trade position was closed at 0.08 for a 33% profit. 

Like every egg in a carton, every trading day in the AGE position needed to be checked carefully in case of any cracks alerting us to take appropriate action. The trend in this stock didn’t end with the trigger of the ATR stop loss. Keeping the position open with a switch from ATR to the CBL stop loss helped monitor the trade more closely and with the resumption of the uptrend, the trade was completed.