Resource Centre - Various Ideas Around Trading Strategy That May Be Beneficial To Clients.
Click on the image to enlarge.
Core Trading Principles: Short and Medium Term
Trade with the primary trend.
Volume Matters. This represents the interest of large institutional investors who have the ability to move a share, both up and down.
Do not short/sell a share that is above, and in close proximity to it’s rising 8 and 21-day moving averages. This trend can persist for an extended period.
Ultra short term traders, if a share has advanced strongly over a 3-7 day period, book profits. You can always re-enter and do the same trade at lower levels.
If a share is printing a large bullish (green) candlestick following an extended move, use the strength to sell. The likelihood that the share retraces is high.
If a share is printing a large bearish (red) candlestick following an extended move to the downside, use the weakness to start a long position. The likelihood that the share rebounds is high.
Trade in the direction of the 20-day moving average, using the MA as a level to enter as well as a hard break thereof as a trailing stop-loss.
The 8 and 21-day moving averages often act as support and resistance levels. When they are turning down, use them as levels to sell into. The opposite applies when they are turning up.
The first back-test of the 50-day moving average has a high probability of holding as support or resistance. Buy or sell it for a 1-3 day move to generate cash flow.
Stocks above a rising 200-day moving average spend the majority of their time trending higher. The opposite applies when the 200-day is trending down.
Previous support can turn into resistance and previous resistance can turn to support. Use these zones as levels to trade against.
Support and resistance levels and key moving averages are ranges rather than exact levels. They often overshoot these zones before occasionally reversing at these levels.
Respect the FIB (Fibonacco) retracement zones. They often act as support and resistance levels.
‘PAY-tience Pays’, however be nimble to react to opportunity to cut when a trade hasn’t been working.
Above all, know your time horizon.
Core Macro Principles
Watch the US 10 Year Bond Yield: Higher levels are negative for growth stocks, but positive for cyclical sectors.
Watch Brent Crude Oil. Higher levels = brighter outlook for global economy or the anticipation of tighter supply but could also result in inflationary pressures and a tightening of monetary policy.
If you’re expecting the US Dollar to appreciate, that’s historically been a negative for commodities and commodity currencies.
Higher commodity prices = A stronger Rand. If you’re anticipating a strong Rand, accumulate SA focused shares that have lagged the market.
If news out of the Chinese economy is favourable, there is a higher likelihood that the commodity shares and luxury goods companies will be bid.
If oil advances strongly and the Rand is weak, JSE consumer discretionary shares may not perform well as consumers would have their spending power curtailed by possible/pending petrol increases and/or input costs.
Most days, when Naspers/Prosus is strong, Firstrand and MTN is weak. This is a favoured HF trade. The opposite applies. Be open to exploiting this relationship to generate cash flow.
Watch Tencent in Hong Kong. Adverse moves may guide on the direction for NPN/PRX.
Watch BABA in pre-market (US). Adverse moves may guide on the direction for NPN/PRX.
The most volatile i.e. cash generative period is from 9-11am (London/European open) as well as from 3-5pm (US market open).
Leading sectors in the US often translate to the following day European session. If energy (XLE) is strong, then Sasol will most likely follow suit (or not).
Use AUDJPY as a leading indicator for risk. Historically, the pair has been a clear guide to short and medium term sentiment.
Lester Davids
Analyst: Unum Capital
Comments