Slow Trader Diary – week 31

Here are our cashed-in trades for week 31: Healthcare Partners Inc + £89, GBP/USD + £687

IG is our broker, costs for the week were – £25.17

Let’s take a look at GBP/USD.

Conditional: this is a graphed COT (commitment of traders) report giving us a buy condition.

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This graph represents several months so gives us the condition only, important as that is. From left to right, the first arrow is against the trend. Therefore we would not take that as a favourable buy opportunity. However, the second arrow and second buy indication are right as it is with the recent trend. The buy condition should remain if the blue line on the chart continues to descend to a new low.

The COT report completed for the previous week on the following Tuesday, published on Friday. It is therefore about two weeks old by the time we get it. However, it is like the oil tanker analogy where you move the rudder, but it takes several miles to turn. Often that is the case with the COT. Even though it is old information, it gives us a solid hint at the conditional.

Once we have the conditional, we need a recent matching trend. I’ll talk more on the (elusive) trend in follow up blogs.

After trend, we concentrate on price – in other words, a buy signal. Here is our buy signal for GBP/USD this week. The first graph is in daily bars and the second is the same trade from bottom to top but in 4-hour bars. The second chart gives us a different view as to the dynamic of the trade.

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You may have noticed the S&P. Here it is today:

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Knowing what the S&P is doing is not a trading conditional for individual stocks (or shares in the case of the FTSE). That would be too broad a statement. Interestingly, the movement however of the S&P was more or less mirrored by the stocks on my short list. Even being confident of the future progress of my selected stocks I still missed most of them. ‘How is this possible?

Below is an example of what happened.

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Boeing. We notice by the date that the bottom (blue arrow) coincides with the predicted bottom of the S&P. This pin, at a 50% retrace, is a significant buy signal. (Again, we will cover price in more detail in future blogs for those that are interested).

If we choose to: buy on-market, that is at current price – or a buy-stop order, that is at a (higher, in this example) future price – or a buy limit order, that is at a more favourable price. And one, on this occasion, I got wrong. You will notice that the bounce was so hard that after the pin the next days opening price gapped up. Only a buy on market would have worked. I went for buy on limit and missed it. “C’est la vie.”

This was the same this week for four trades that I set.

For the coming week we are keeping a sharp eye on gold. The commercials (that is the COT report) are warming up nicely to a buy signal. Beware of the trend however and remember, as well as recent trend, we also need the price or more accurately price action. But more on this later.

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