FINDING THE ONE - Perfect Way to Profit
Many people believe there is only one person they are destined to be with. The author of the book “How to Make the Biggest Decision of your Life” Dr George Blair-West suggests of the total 7 billion plus people on the planet, 350 000 are potential matches and only 350 of them are potential suitors. Most are excluded due to geographic location or because they are already married. He believes people should focus on choosing the one instead of finding the one.
Similarly, there are many styles of trading. Some examples include short-term, long-term, day trading, swing trading, holding positions for many days or weeks or closing positions within the day. Additionally, there are the details of indicators and choosing a timeframe for entry. Some traders believe there is the one style of trading with the perfect indicator, entry/exit signals and timeframe to work every time. 100% profits and 0% losses.
Once a trader realises there is no such thing as the one strategy, the decision becomes one of choosing one or more strategies compatible with the interests and temperament of the trader.
The following trade on Temple and Webster (TPW) was based on the preferred timeframe of the Daily chart using 2 indicators, the Guppy Multiple Moving Average (GMMA) and the Average True Range (ATR). After the position was closed, I opened the Weekly chart and then the Monthly chart to see if either of these timeframes could also be used as the one preferred timeframe for a profitable trade.
On the Daily chart of TPW, Figure 1, the long-term investors are represented by the red lines of the long-term GMMA and the short-term traders are represented by the blue lines of the short-term GMMA. When the blue group are above the red group they are in the order of an uptrend. Both the long-term investors and short-term traders are supportive at the start of this uptrend. This is shown in the lead up to the entry marked by the blue arrow where we see separated moving average lines in both the long-term GMMA and the short-term GMMA.
A position was opened on TPW with an entry price of $4.74, an ATR stop loss of $3.88 and a profit target of $5.60. Price continued to rise until the moving averages of the short-term group became a compression of lines as marked on the chart. Price moved sideways for a couple of months. The short-term moving averages eventually rose out of the compression, expanding out and turning upwards. Price moved up, resuming the uptrend. The black ATR line below price was the trailing stop loss. If price managed to stay above the ATR line then the trend was still intact. Any close in price beneath the ATR line is an exit signal for the position to be closed. An exit signal occurred on the day when the price of TPW fell 17% in one session, closing below the ATR stop loss. The trade was closed after this event for a 104% return. An exit for this trade should have been made earlier but a busy week delayed my exit for a couple days at a cost. Exercising good discipline in trading often reaps its own rewards.
After the ATR stop loss was triggered, the short-term GMMA began to fall through the long-term group of moving averages. One more attempt at resuming the uptrend failed and the short-term GMMA group fell once more to sit under the long-term GMMA. When the short-term GMMA group sits beneath the long-term GMMA group, there is a downtrend in place.
Some traders prefer to trade using a Weekly chart or a Monthly chart. Using the same trade entry point we observe the development of the trade on the 2 different timeframes.
The Weekly chart starts similarly to the Daily chart as the beginning of the uptrend emerges. A strong uptrend is established as price continued to rise. The ATR stop loss is triggered at $10.22 as marked by the second blue arrow. Compare this to the ATR stop loss triggered at $12.22 on the Daily chart. At $10.22 it is a 16% lower stop. A wider stop on a longer timeframe means giving price the room to move without stopping out prematurely. It also means giving back some more profit or larger losses if the price drops.
Some traders prefer a Monthly chart, Figure 3, if they have a longer time horizon for holding onto a stock. Using the same trade entry point we observe the development of the trade.
The Monthly chart is similar to the Daily and the Weekly charts as the beginning of the uptrend emerges. A strong uptrend becomes more obvious as price continues to rise month after month. The ATR stop loss on the Monthly chart as marked by the black line is currently sitting at $6.52. A trader using the Monthly chart continues to hold this position open. A wider stop on the Monthly enables you to stay in the trade for longer, ignoring the noise of price movements found on the Daily or Weekly chart. The downside is giving back more profit if price eventually triggers the ATR stop loss and an upside of potentially staying in a stock for years if the stock continues to trend strongly.
When a stock is compatible with our requirements, in this case an uptrend, there are a few chart choices available leading to a successful trade. Although you can try to find the right timeframe or the one perfect strategy, there is more than just the one. There are many ways to make a profit.