Penny Stocks - Trading Idea

Malaysian penny stocks tend to be highly speculative but if traded well can be highly rewarding. They have a tendency to consolidate within tight range for weeks or months then all of sudden without warning would jump up.

Is there a way that we could capitalise on this tendency?

I think there are but there is no certainty that it would work all the time. Remember trading is an exercise in probability. We look for a market tendency and we take a calculated risk.

What we want to do is to identify penny stocks undergoing consolidation within narrow range and enter in anticipation of the upside breakout. You can wait until there is confirmation as recommended in most trading books but by that time that happened most of the upside potential would have diminished. As a filter you should check the Company fundamental to make sure that financially it is still sound.

The technical indicator you need to use is Bollinger bands. It is one of the best tool to identify stock undergoing consolidation because Bollinger bands tighten when a stock consolidates into a narrow range. Let's look at SALCON chart as an example.

SALCON Daily Chart 20th Nov 09

You can see that SALCON Bollinger bands tightened from late Nov 08 to late Mar 09 and from early Aug 09 to early Nov 09. I have highlighted the price bars in those period in blue colour to make it easier for you to see. Notice that after the consolidation period ended SALCON price jumped up! How could you have capitalised on this. You would notice that SALCON tends to consolidate for 3-4 months. What we should do is to buy SALCON ahead of the upside breakout and buy at favourable price. We know that SALCON tend to consolidate within 3-4 months so we would buy SALCON whenever it is near the Bollinger lower band 2 months after it started to consolidate. You need wider stop and need to be patient though but your reward could be quite handsome.

My second example is DBE Gurney Resources Bhd.

DBE Daily Chart 20th Nov 09

Notice that DBE Bollinger bands tightened from end Jul 09 to mid Oct 09 before DBE price jumped up.

You probably spotted that DBE Bollinger bands are beginning to tighten up again. It took DBE about 2 1/2 months to consolidate last time so you should know what to expect next!

Another one I want to show you is NTPM, which has consolidated for about a month now.

NTPM daily chart 20th Nov 09

What would happen to DBE and NTPM? Let's revisit in 2 month time.

Disclaimer:

Trading and investment involves risk, including possible loss of principal and other losses. I shall not be responsible for any losses or loss profit resulting from trading or investment decision based on my posting and information presented in this blog.

Swing Trading the Forex Market

I began to take an interest in Forex trading after reading "Secrets of Forex Millionaires" by Yeo Keong Hee.

This week I started to trade Forex on a live account putting my money at risk after on demo accounts for a while. I started with a small account just to test the water.

Amazingly swing trading works well for Forex trading too but the time-frame is a lot faster. It is not end-of-day weekly and daily charts anymore but intra-day live charts. All those years of studying price charts help.

Money management is an absolute must to manage and control risk.

To date, I have made a total of 39 completed trades - 29 wins and 10 losses -this year in the stock market. In comparison, I have made a total of 8 completed trades - 5 wins and 3 losses - in 3 days in the Forex market!

Do visit my other blogspot.

http://swingtrader188forex.blogspot.com/

DJIA

DJIA Daily Chart 20th Nov 09

DJIA is still trading within a price channel. The channel has became steeper than last week and the new high is validated by a higher MACD. Volume is however still not convincing. What is the outlook for next week? There could be correction before another test of the upper channel line.

Disclaimer:
Trading and investment involves risk, including possible loss of principal and other losses. I shall not be responsible for any losses or lss profit resulting from trading or investment decision based on my posting and information presented in this blog.

DJIA

DJIA Daily Chart 13th Nov 09

DJIA is currently trading within a price channel. It has moved up from last week. What is the outlook for next week? There is likely to be a test of the upper channel line next week. Will there be a break out? It is not clear. Although price channel is rising but the volume pattern has not been convincing since it has been declining.

Disclaimer:
Trading and investment involves risk, including possible loss of principal and other losses. I shall not be responsible for any losses or lss profit resulting from trading or investment decision based on my posting and information presented in this blog.

Link List Updated

I have updated my link list to include StockCharts.com - ChartSchool. This is a very useful website where you can learn about technical analysis. It covers the basic very well. Well enough to save you spending money unnecessarily on expensive books on Technical Analysis.

At the end don't forget to read John Murphy's Ten Laws of Technical Trading. You can build your trading strategy based on these ten laws.

Come Into My Trading Room

This has to be one of the most comprehensive book on trading. It covers not only the method (Technical Analysis and Dr. Elder's Triple Screens System) but the other two more important aspects to succeed in trading - Mindset and Money Management.

You do not have to follow Dr Elder's method strictly to the letter but be sure to follow his recommendations on the two more important aspects of trading especially Money Management.
It is a bit pricey at USD40.95 if you buy from Amazon but it is certainly a worthwhile investment.

MTOUCHE - Start of an uptrend?

MTOUCHE is a ACE-listed mobile messaging technologies and interactive mobile applications provider with international presence. Technically MTOUCHE is beginning to look very attractive. I usually trade big cap counters but MTOUCHE technicals is just too good to pass.
Now let's look at MTOUCHE price charts.

MTOUCHE Monthly Chart 12th Nov 09

MTOUCHE was in a severe downtrend from Nov 06 to Aug 08 where it dropped from 4.12 to 0.15. It then began to consolidate and appeared to have formed a base.

MTOUCHE Weekly Chart 12th Nov 09

Last week saw an exceptionally high trading volume on MTOUCHE. Something could be brewing? Technically there are clues that MTOUCHE could be at the start of an uptrend.

MTOUCHE Daily Chart 12th Nov 09

On daily chart, you could see that the moving averages in proper order to indicate an uptrend. The 10-day SMA is above the 20-day SMA, the 20-day SMA is above the 50-day SMA and all the SMA lines are rising. It is now setting up nicely for a pullback swing trade. A bullish candlestick pattern with long tail testing the 10-day SMA and 61.8% Fibonacci support indicates MTOUCHE could be starting another upswing. I expect the 10-day SMA line will provide support and another run up to test the previous high at 0.455 is likely.

As wider stop is required for penny stock, proper position sizing is very important to control risk. Remember the 2% rule. Never expose your trading account to more than 2% potential loss.

I entered today at 0.36. My stop-loss is at 0.295 and target at 0.455 and 0.52.

Disclaimer:

Trading and investment involves risk, including possible loss of principal and other losses. I shall not be responsible for any losses or loss profit resulting from trading or investment decision based on my posting and information presented in this blog.

GAMUDA Trade

I look for a few set-ups from my chart analysis to identify trading opportunities. I look for simple chart patterns - (1) Test of support (2) Pullback (3) Bottom reversal (4) Continuation patterns and (5) Squeeze - with a few technical indicators to support my analysis.

My trade set-ups generally have a good probability of working out but they do not give me positive outcome all the time.

GAMUDA Daily Chart on 20th Oct 09

On 19th Oct 09, I spotted a potential triangle pattern was developing on GAMUDA daily chart. I was expecting a breakout because the MACD downtrend line has been broken earlier, which provided a technical clue that the triangle upper line was likely to be broken soon. In addition, the Bollinger bands were tightening (not shown in chart), which is usually a prelude to a breakout move. The downside is the direction of the breakout could up or down - so setting stop-loss and proper position sizing is important.
You may notice a similar set up in mid Jul 09, which was followed by a strong upmove although the size of the triangle was smaller.
On the basis of these technical evidences, I decided to buy GAMUDA at 3.31 on 20th Oct 09. My stop-loss was at 3.12 (6% below my entry price) and my target at 3.84 (16% above my entry price).

GAMUDA Daily Chart on 29th Oct 09

As it turned out, GAMUDA did not breakout to the upside as I expected. There was a false breakout on 23rd Oct 09 but after that GAMUDA has been sliding downhill. On 29th Oct 09, GAMUDA dropped below its triangle lower line. I decided to cut loss when my stop-loss level at 3.12 was touched just in case GAMUDA price dropped even further. I exited at an average price of 3.125 for a 6.77% loss. The overall loss to my trading account value was, however, minimal - just slightly above 1%

Disclaimer:
Trading and investment involves risk, including possible loss of principal and other losses. I shall not be responsible for any losses or loss profit resulting from trading or investment decision based on my posting and information presented in this blog.

SUPERMX

SUPERMX Weekly Chart 10th Nov 09

SUPERMX is setting up nicely for a classic pullback swing trade.

Its weekly chart showed a pattern of higher peaks and bottoms. All the price peaks were accompanied by higher volume and MACD. SUPERMX long term trend was clearly up.

SUPERMX Daily Chart 10th Nov 09

Its daily chart showed a pullback to the 20-day SMA line and 38.2% Fibonacci support line. From the price action these support level appeared to be holding. Should the support hold, I expect SUPERMX to test and likely to penetrate its all-time high at 4.04.
My plan was to buy at around 3.56 but SUPERMX gap opened at 3.60 and raced quickly to 3.67 within 10 minutes. I waited for a correction and was able to buy at 3.61.
My stop-loss is at 3.37, which is below 5th Nov 09 low. My swing target is at 4.36 and 4.97 based on 61.8% and 100% Fibonacci expansion respectively.

Disclaimer:

Trading and investment involves risk, including possible loss of principal and other losses. I shall not be responsible for any losses or loss profit resulting from trading or investment decision based on my posting and information presented in this blog.

DJIA

DJIA Daily Chart 6th Nov 09

DJIA is very resilient. On 28th Sep 09 I wrote that DJIA had made a triple bearish divergence with its MACD. As it turned out there was no top reversal but merely a correction to the uptrend line that DJIA has been on since mid Aug 09.
There is now a quadruple bearish divergence between DJIA and its MACD as you can see from DJIA daily chart above yet the uptrend line is still intact.
What is the market outlook? I have to say there is a positive bias on the likely market direction but I will wait for what the market tells me.

Disclaimer:

Trading and investment involves risk, including possible loss of principal and other losses. I shall not be responsible for any losses or loss profit resulting from trading or investment decision based on my posting and information presented in this blog.