Within the trading environment, many strategies exist as a way to determine a path to profitability and many new market participants might be under the false impression that these trading strategies come with a 100% success rate, leaving the trader with no (or little) chance of realizing a loss.
As legendary money manager Peter Lynch once remarked:
“In this business, if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten“.
Today I want to have a look at 3 technical trading strategies that have a fairly high probability of success:
#1. The 200-Day Moving Average
On the trading desk chat forum last week we were having a discussion around trading strategies, using a recent example in Woolworths Holdings ($JSEWHL).
Using the long term chart, we had a look at the moving averages and how that would be a guide to whether a trader could either go long or short.
Going back to 05-Nov we see the share having peaked at R108 after appreciating from R79.35 one year prior. As a result of the weak Rand coupled with a high valuation, the priced started to decline. Here we saw the price crossing below it’s 200-day moving average, while the 50-day moving also crosses below this level.
This is commonly referred to as a “death cross” which is a long term sell signal. This occurred during the last week of January 2016 which subsequently saw a long term downward trend commence. During the second week of February 2018, we saw the opposite happen where we saw a “golden cross” occur – this being the long term buy signal.
While the new long term buy signal has triggered, we may see a consolidation around this level. The share will also have to overcome the downward trend line in place from the peak at R108 to reclaim the bull trend.
So, next time you open your charting package, don’t forget to add that 200-day moving average.
#2. Channel Support and Resistance
From time to time prices move in a defined range, attracting buyers and seller at key highs and lows. At times this occurs within a channel that could move in an upward, downward or sideways range.
Over the last two and half years, we have seen a perfect example of this with Curro Holdings, a share that has traded in a sideways to downward channel.
The top of the channel has created an opportunity to sell the share while the lower boundary of the channel could have been used to accumulate shares for a bullish move. These levels, along with other factors represent ideal opportunities for traders to participate in a high probability setup.
#3. Rising and Falling Wedge
This has to be one of my favourite setups, as they have such a high probability of success.
Recently we saw this with Nampak, where a falling wedge pattern had developed since the second week of January 2018. Upon an upside break of the wedge, we saw the price push higher, appreciating over 10% in 4 trading days.
Prior to this we saw a rising wedge develop from September to October 2017, which was followed by a resumption of the downward trend.
To participate in some of the trade ideas and strategies, please get in touch with our trading desk.
Here’s to profitable trading,
Trading Desk Analyst
Not too long ago concern over the Chinese economy, global growth and low commodity prices, lead to fears that resource companies could go under. Compounding this was the fact that these companies were over-indebted, having taking on huge projects at the peak of commodity cycle.
Assisted by a weaker US Dollar, a global economy that is in better shape, the abating of fears over the Chinese “hard landing” and a reduction in oversupply, mining companies are now in much better financial condition than in prior years. This is reflected in the share prices that have risen from multi-year lows.
What is current outlook for the share prices you may want to know? Below we have a few chart views from the Trading Desk, highlighting potential opportunities:
Anglo American plc (AGL)
AGL is currently trading near it’s 50-day moving average, having pulled back from the R295 level just under three weeks ago. The RSI is also trading near support, looking to turn up from current levels. The first upside target according to Retail Client Trader, Innocent Maponde is R285.
Glencore is the preferred pick of KZN Regional Director, Taahir Joosub.
To summarize his investment thesis:
– Confidence in management (Ivan Glasenberg), a visionary in the commodity space.
– Global economic recovery underway, underpinning demand for metals
– Composition of metals. Glencore is the well positioned more than any other miner to capitalize on growing demand for electric vehicles.
– Recently ramped up production in metals such as cobalt, nickel and copper. Key metals essential for battery manufacturing.
– Geographically diverse exposure, not heavily concentrated in S.A and associated uncertainty around Mining Charter outcomes.
– Uptrend intact from early 2016
– Found support at 200-day moving average
– RSI in oversold terrirory
– Horizontal support around R60 with a potential double bottom in the making.
First target R71
Second target R76
BHP Billiton (BIL)
BIL has retreated from the recent peak of R283.27 we saw of 15-Jan-2018. Over the last three trading sessions we have seen the price hover around support at R248/250 before starting to move higher during midday (13-Feb-2018). The price is above the 200-day moving average and the RSI has turned up from oversold territory. The first target to the upside is R263, with potential to test R270.
Kumba Iron Ore (KIO)
Over the last month the share has traded in a downward channel from the peak at R415 down to the recent low of R318. This morning the share (on the back of results released), broke out of the channel, hitting a high of R365.95 before running into resistance at the 50-day moving average. The pullback may see the share trade back at it’s prior short term resistance at R339/341 giving an opportunity for traders to accumulate on a re-test of the breakout level.
According to Michael Porter, Private Client Trader, preferred exposure to KIO would be through AGL which owns approximately 70% of the outstanding shares.
At current prices, KIO offers a 8.6%.
Any further short term trading opportunities in these shares will be communicated via the Unum Chat group, so make sure you are registered.
If you are interested in trading any of these ideas, please drop the trading desk an e-mail today to get going.
Here’s to profitable trading.