Click below for the latest Market Watch Video (if you can’t see the video, click the link above) - See Terms Here

UPDATE:

It seems like the tiniest bit of news can send the market into a panic or an uproar at the moment.  One minute it’s up, one minute it’s down.  This signals one thing and one thing only – investors don’t know what the hell to expect from earnings this year and so are taking their cues from any piece of information they can.  As most of you will already know, this can lead to disasterous results.

So far it’s been a mixed bag, with some companies reporting nice profits (CCL, Coca Cola) and some posting dismal failures (TLS, Telstra), and then some posting gains, but not big enough (like NAB, National Australia Bank).  Lots more results to come out this week, so maybe the market will get some traction then!

In the mean time, however, the charts tell us the story we need to know.  As William Gann says – we should be using all of our rules all of the time.  This week’s video is no exception, with Elliott Wave rules, Trend Line rules, ABC Corrections, and of course the buy and sell signals using these methods!  We hold nothing back, so check it out.

But most of all, enjoy and have fun!

As always, thanks heaps for checking out ASX Market Watch – Subscribe in the top right hand corner for weekly updates! 

Of course please do your own due diligence - a great place to start is the free trading and investment course on this site.  Check out my personal Trading Diary if you want to see me practice what I preach. 

Happy trending,

Dave

 See Terms Of Use Here

So many people have asked for an easy way to get started in the share market.  And we’ve listened -  going with the philosophy here of “no fluff” and giving you the goods straight away, we’ve made it easy, but also made it extremely powerful!

In fact, there’s so much in the first part of this incredible Video Course that we’ve had to split the first one into two parts on this page – both of them jam packed with stock market strategies that you can use straight away to help you make money! 

Scroll down, follow along, and if you love them post a comment or send feedback! 

Part 1: It’s All About You: And How To Draw Trend Lines That Will Make You Money

(For best results, pause and let the video load for 30 seconds)

Follow along with the video!

In our first video we cover a lot of extremely important stuff.  First up, we go through defining your “roadmap” – what you truly want to achieve and get out of the share market.  Answering these questions will give you a great head start:

1. What is it you want out of the share market?
2. Is it a dollar value?  Like $50,000 a year?  $100,000 a year?  Or maybe a few grand just to supplement your income?
3. Is it a percentage amount?  Maybe 30% a year, maybe 10% a year?  Maybe you just want to beat the managed funds you are currently in?
4. Is it something you want to do?  Maybe have more time for your family?  Maybe holiday more?

Great work!  Take this list that you’ve made and look at it in 6 months time.  It will be a great reminder of where you were, and it will keep you on track to reaching your goals and ensuring your happiness.

Next, we look at how to draw trend lines that can make you money.  Trend lines are seriously one of the most powerful tools you can use in your trading.  Don’t be fooled by how simple they are!  Many people overlook them because they seem simple – but the simple things in life are often the best. 

The following rules are great for drawing solid trend lines.  First:

1. We need to start from the highest peak, or the lowest trough. 
2. We need either 2 peaks or 2 troughs
3. Our trend line cannot go more than 1 – 3% through a peak or trough
4. To draw a steeper trend line, we need 3 troughs or peaks from the acceleration point
5. To flatten our trend line, go back to rule 3 – cannot go through peaks or troughs

Now you know how to draw trend lines that can make you money!  Watch the video below for entry and exit rules – actual buy and sell signals using trend lines.  Check it out now!

Part 2: How To Buy And Sell Shares Using Your Trend Line Rules

(For best results, pause and let the video load for 30 seconds)

Follow along with the video!

This is our ridiculously simple way for entering and exiting the market using trend lines.  Here are the rules:

1. Price must close above the down trend line and the previous 2 peaks for a buy
2. Price must close below the up trend line and the previous 1 trough for a sell

And in the video we show you a great example of how this actually works – even using it during a bear market to really show you the proof!

As always, this is something that you can take and use straight away – a simple yet amazingly powerful tool.  Please leave a comment below, or send feedback via email!

Feedback: dave@asxmarketwatch.com

See you at the next video, where we look at the second most powerful when investing in the stock market!

Dave

Feel Like You Need More Info To Be Caught Up To Speed?  These 3 articles will help you get there.

1:   The Benefits of Compounding – How To Become A Millionaire

2:   The Bar Chart and Why We Use It

3:   Identifying Peaks and Troughs, the cornerstone of trading techniques

Obviously it is not a recommendation to do anything whatsoever - and the back-tested results do not mean it will be the same in a live market.  I’m sure you are already aware – things can change. 

As always, any suggestions, questions or comments, please let me know. 

Dave McLachlan

Know Your Total Possible Risk

By Dave McLachlan

With many traders out there calling a start to a new bear market (they’ve actually been calling it for the past 2 months, while the market continues to climb), I thought it might be prudent to show you what we can do in the event that a bear market actually does eventuate.  There is a great way to put all of the opinions of others away and get a good nights sleep – and that is to know your total possible risk.

Your Total Risk: What Does This Mean?

Many of us tend to think that our total risk is the sum of all of our positions, and in a bear market we could lose it all.  Sure this is true if the world ends and all companies go to zero – but let’s be honest: this is not a realistic way of thinking (as entertaining as it is).

No, total risk is actually much less: it is merely the difference between the current stock price and our current stop loss, multiplied by the amount of shares we have for each position we have open.  Let me give you an example:

For simplicity’s sake in our portolio below, we own 3 shares.  Their stats on our trade sheet look like this:

So while the sum of our holdings is $6,400, our actual risk is only $700 – around 11% of our trading bank.  Yes – there may be some slippage or maybe a price-gap or two, but all in all, if we are risking no more than 2% per trade, these don’t have too big an impact on our portfolio.

If you do the sums on your own portfolio and don’t like what you see (i.e. your total risk is still very large, or more than 20-30% of your portfolio) then maybe now is a good time to lighten a few positions.  Again – this is an individual thing – some people thrive on more risk and others don’t like it at all – but whichever you are, knowing yours is a powerful tool.

The Bear: We Will Usually Get Fair Warning

Believe it or not we were given very fair warning of the crash in 1987 – at least on the chart – and very little slippage actually occurred.  If your stop losses were in, you calmly exited the trade (in most cases still above where you bought in), and then calmly waited for more entry signals to occur down the road.  A simple process.

I urge you to do the sums every once in a while – when the news is blaring and the market is panicking, you will know exactly where you stand and be prepared for the worst.  And as many famous investors once said (I think Peter Lynch, Warren Buffet, and even Donald Trump have been attributed to this):

“Prepare for the downside, and the upside will take care of itself”.

The Life Span Of A Trend

By Dave McLachlan

One of the great traders interviewed by Jack Schwagger in the “New Market Wizards” was named Victor Sperandeo.  Vic used to say that trends were like people – they had a certain lifespan that could be used to determine how risky a position would be if we were to take it. 

For example – if we were to place a bet on a young 20 year old, we could be reasonably safe in assuming they would live a long, full life.  But if we were to place a bet on an 80 year old, even if they were in the finest of health, it would be fair to say that the bet would potentially not be as safe. 

How does this relate to trading?  It’s simple, and we can use it in three ways -

1:  We make the largest trades on “young” trends where we have the highest probability of winning, and smaller trades on “old” trends.  This relates to money management – more on this below.

2:  If the trend of the market is nearing its typical lifespan, we can tighten our stops on positions we are in.  For example, at the beginning of a trend, we can set our stop beyond the trend line to give it enough room to move.  As the trend nears its end, we can tighten our stop to just below a previous trough (or peak when going short) to ensure we don’t give too much back.

3:  If a trend has travelled past its usual life-span (see more on this below), we can simply elect not to take the trade.  The market will always present another opportunity.

Of course we still only enter according to our solid and back-tested trading rules, but changing our money management by using these strategies can help increase our bottom line.

So What Is The Life Span Of A Trend?

In Market Wizards, Vic says that the average market move is around 20%, lasting between 6 weeks and 6 months.  This obviously relates to American markets, which is fine, but I decided to do some research on our home markets – the ASX Top 200. 

Looking at the history of the ASX Top 200 index over the last 20 years, I based a trend on the following:

1:  Looking at a Daily Chart

2:  Basing an entry on either a continuation pattern entry, or a trend-line entry signal

3:  With the trend lasting more than 4 weeks (or else it was deemed a false breakout)

4:  Measuring the trend from the entry signal breakout to the very top or bottom of its range, to get the full idea of its move

And here are the results!

Over a 10 year period:

Long Trades – Trend Line entry: 13.9%, Continuation Pattern entry: 12.2%, False breakouts occurred most in: Sep and Jun.

Short Trades – Trend Line entry: 11.5%, Continuation Pattern: 17.2%

Over a 20 year period:

Long Trades – Trend Line entry: 17.7%, Continuation Pattern: 12.5%, False breakouts occurred most in: Sep, Mar, Nov.

Short Trades – Trend Line entry: 10.1%, Continuation Pattern: 18.4%

So, you can see we have a clear winner – if you ever see a continuation pattern forming in a bear market, get ready to go short!  It had the largest average move at 18.4%.  The overall market would also move an average of 17.7% from a trend line entry, and 12.5% off a continuation pattern entry.

Using Life Spans With Your Back-Tested Trading Rules

As you probably can already guess, I do not recommend using life-spans of trends by themselves – but in conjunction with your back-tested trading rules for entry and exit.  So how can we use them?

Well, if you usually risk 2% of your overall portfolio on a trade, but the market has moved 15% off a continuation pattern entry, then instead of risking 2%, risk 1%.  This way we are still in the trade, but with a lower risk if the market does reverse around its average life span.  Of course if the market has travelled well past its usual life-span, we can always stay out of the trade all together.

A simple and great (although slightly more advanced) way to determine our money management on a trade!  If trading is all about tipping the odds of probability in our favour, then this is another great way to do it.