38Support & Resistance levels highlight possible “turning points”
39Support & ResistanceThe more times a share price has touched these areas, the more valid these levels are & the more important they become.The longer these support & resistance levels have been in play, the better the outcome when the share price finally breaks out.
42Trend Lines Resistance Trend Line Support Trend Line Resistance As long as the price stays above/ below the Support or Resistance lines, the trend is either bullish or bearishResistanceTrend LineSupportTrend LineResistanceTrend LineSupportTrend Line
43Trend Lines - Bull Resistance Resistance Support Resistance Trend Line Support Trend LineSupport Trend Line
44Trend Lines - Bear Support Trend Line Support Trend Line Resistance Trend LineSupport Trend LineSupport Trend LineResistance Trend LineResistance Trend LineResistance Trend Line
46Entry PointsOnce prices are set to close above a resistance level, a trader will establish a bullish position.When prices are set to close below a support level, a trader will take on a bearish position.
47Exit PointsHow long am I planning on being in this trade? (Depends on what type of trader you are: Position, Swing or Day Trader)How much risk am I willing to take?Setting near-term profit targets that execute at opportune times to maximize profits.Here are some common execution points:Retracement levels.Trend line breaks (Support & Resistance).Any other technical points.Developing solid stop-loss points that immediately get rid of holdings that do not perform.Creating exit strategies based on technical factors affecting the short-term.
48Exit Points Where do I want to get out? Many people become irrationally attached to their holdings & hold these equities when the underlying fundamentals of the trade have changedTraders sometimes worry & sell their holdings even when there has been no change in underlying fundamentals.Both of these situations can lead to losses & missed profit opportunities.Set a point at which you will sell takes the emotion out of trading.The exit point itself should be set at a critical price level, i.e. technical points e.g. Retracement levels
58Breakout Trading: The Steps Identify the candidateWait for the breakoutSet a reasonable price objectiveAllow the share to retestKnow when your trade has failedExit at your price target (TP)Be patient•Identify the candidate - Find shares that have built strong support or resistance levels and watch them. Remember, the stronger the support or resistance, the better the outcome. Make sure that you understand this when you shop for shares to watch.•Wait for the breakout - Finding a good candidate does not mean a trade should be taken prematurely. Wait patiently for the share price to make its move. To be sure the breakout will hold, on the day the share price trades outside its support or resistance level, wait until near the end of the trading day to make your move. Be patient.•Set a reasonable price objective - If you are going to take a trade, set an expectation of where it is going. If you do not, you would not know where to exit the trade. This can be done by calculating an average move that the share makes or measuring the distance between support and resistance (especially when trading price patterns).•Allow the share to retest - This is the most critical step. When a share price breaks a resistance level, old resistance becomes new support. When a share breaks a support level, old support becomes new resistance. In the majority of your trades, the share will test the level it has broken after the first couple of days. Prepare for it.•Know when your trade/ pattern has failed - When the share attempts to retest a prior support or resistance level and it breaks back through it, this is where a pattern or breakout has failed. It is imperative you take the loss at this point. Do not gamble with your losses.•Exit trades toward the market close - You cannot discern at the open whether prices will hold at a particular level. This is why you might consider waiting until near the market close to exit a losing trade. If a share has remained outside a predetermined support or resistance level toward the market close, it is time to close the position and move on to the next.•Be patient - This strategy requires plenty of patience. By following these steps, you will reduce emotion and be more objective about a trade.•Exit at your target - If you are not exiting the trade with a loss, then you are in the trade. You should remain in the trade until the share price reaches its objective, or you reach your time target without hitting your target price.Conclusion - Breakout trading welcomes volatility. The volatility experienced after a breakout is likely to generate emotion because prices are moving quickly and in a volatile fashion. Using the steps and information covered in this tutorial will help you define a trading plan that, when executed properly, can offer great returns and manageable risk.
59Breakout Trading: The Steps = 156Resistance118 to 137 = 19Support
60Breakout Trading: The Steps ResistanceSupportResistance / SupportSupport
61Breakout Trading: The Steps ResistanceSupportResistance / SupportSupport
80Breakout Trading: Conclusion Breakout trading welcomes volatility.The volatility experienced after a breakout is likely to generate emotion because prices are moving quickly & in a volatile fashion.Using the steps & information covered will help you define a trading plan that, when executed properly, can offer great returns & manageable risk.
81General George S. Patton The Trading Plan“A good (trading) plan today is better than a perfect (trading) plan tomorrow”General George S. Patton
82The Trading Plan“Trading provides one of the last great frontiers of opportunity in our economy. It is one of the very few ways in which an individual can start with a relatively small bankroll and actually become a multi-millionaire”Jack D Schwager
83The Trading Plan Know Yourself, Know Your Purpose Trading Goals Markets, Instruments & TimeframesTools of the TradeBefore the Market Opens …Risk & Money ManagementExit StrategyTrade Strategies, Setups & EntriesAfter the market closes …DisciplineGolden Trading Rules …
84Who needs a Trading Plan? Unless you are consistently profitable trader over a sufficient length of time to encompass a number of different market conditions – then YOU need a trading plan!If you have achieved this:– Refresher courseOpen your eyes to new aspects of trading that can improve your profitabilityConsistently profitable
85What will the Trading Plan Do? Makes the act of trading simplerLimits your opportunity to make bad tradesIt will prevent psychological issuesAct like a roadmap / Personal GPSEither something in the plan is not workingYou are not adhering to the trading planTake away much of the decision makingEmotional & irrational decisionsEnable you to trade outside comfort zonePrevent letting losses run & cutting profits shortInstill a large measure of discipline
86Know Yourself, Know Your Purpose Understand your psyche & sentimentDecide what you want to achieve, ask why & how trading is going to provide it?Why do you want to be a trader?What sort of trader are you?What are your strengths & weaknesses?Are you in the right frame of mind to trade?What are your income targets?
87Trading Goals Setting goals are essential Beacon to work towards Track progressMotivation requiredDefine goals in terms of your development as a proficient traderAnnual Trading GoalsMonthly Trading GoalsWeekly Trading GoalsDaily Trading Goals
88Markets, Instruments & Timeframes Decide which markets will you trade?Which instruments will you trade?Basket of shares / whole market?SSFs / CFDs – Top 40 / Mid Caps?Currency Futures – Currency pairs?Which timeframes will you trade?Day Trader – Minutes & Hours?Swing Trader – Days & Weeks?Position Trader – Months & Years?
89Tools of the Trade What financial vehicle will you use to trade? Equities, Warrants, CFDs & SSFs?What broker & trading platform will you use?What Live Prices are you going to use?Which charting software will you use?
90Before the Market Opens … What is your daily pre-market routine?Have you analysed yesterday’s trades?Do you have any positions open?What are the general market conditions?What will you do today – hour by hour?Which instruments are on your watch list?
91Risk Management General Risk Management Specific Risk Management What is your attitude towards risk?What is the overall market risk?What is the sector risk?What is the broker & hardware risk?What is the strategy risk?What is the probability of a successful trade?What is the Risk-Reward ratio?What is your risk per trade?Where will you place your stop loss order?When will stop trading?
92General Money Management Specific Money Management Will you lock in profits?How will you determine your position size?Large draw downs & profitsWhat will you do?Which money management approaches will you utilise?
93Exit Strategy Losing trades Will you exit before your stop is hit? Which signals will see you exit early?Winning tradesWhich signals will see you exit completely?Which signals will see you close half?Which signals will see you close the remainder?
94Trade Strategies, Setups & Entries Which strategies will you trade?What are your trade setups?How will you find your setups?Which signals will trigger your entry?
95After the market closes … Have you recorded today’s trades?Did you execute your trades according to your trading plan?Have you completed your trading journal?
96Discipline Back test or forward test? What are your promises to yourself?What questions do you ask after a winning trade?What questions do you ask after a losing trade?What steps do you take to learn more about trading?
97Golden Trading Rules Protect & preserve capital! Always set a stop loss, always!Cut your losses short – Let your profits run!Trade what you see – Not what you think!Never chase your losses, ever!Never average down, ever!Keep excellent records!Maintain discipline!Keep it simple!Plan the Trade – Trade the Plan!
98The 3 M’s Trading boils down to three main areas: Your Mindset (or psychology),Your Money management (how you manage your risk), andThe Method you use to buy and sell (your trading system).The three Ms!Of those three areas, your mindset and your ability to control it are by far the most important!The key is that your mind drives everything you do in your life and trading is no exception.What is it that separates the successful from those who fail?Why are most people who start trading unsuccessful yet there is this small group of people who are successful?The answer your psychologyEssentially, your mental ability to manage losses and profits and the good and the bad times in trading, manage risk, to not become too greedy and many others are all encapsulated under the heading of ‘trading psychology’.
99Alpesh B. Patel [Author of the book “Trading Online”] The 3 M’s - Mindset“While a trading plan cannot predict the future, it can lay down how you react to the possible outcomes. This is why a trading plan is essential. It is a list of strategic responses to events beyond your control. You control the only thing you can control – YOURSELF!”Alpesh B. Patel [Author of the book “Trading Online”]
100The 3 M’s - Mindset Attitude - How you react Self Confidence - Belief in yourselfObjectivity - Increase impartialityPatience - Watching & waitingDiscipline - Stick to your planThere is one overriding influence on your trading success and that is your attitude.Your attitude will determine whether or not you are profitable with your trading. Your attitude is more important than any of the character attributes required for successful trading; it is more important than your market knowledge and your degree of skill.One of the most important attributes (in anything in life really) is self-confidence.Self-confidence is a measure of your belief in yourself, and has a number of consequences in trading should you lack it.Being a successful trader requires that you to trust & follow your trading plan.Confident traders rely on their own methodology and not what others are saying.Have realistic expectations - people can take trading too seriously.Feel the weight of the world on their shoulders and crumble under the pressureAlways maintain a clear mind and perhaps consider trading like any other game or sport.Emotions are probably the single biggest problem we face when trading (along with a lack of discipline). Emotions should have little place in your decision making.Be decisive and disciplined with your decision makingWinning traders focus on the right things - things that matter.Occasionally schedule a break from your trading.
101The 3 M’s - Mindset"The longer I live the more convinced I become that life is 10% what happens to us and 90% how we respond to it.” …Charles Swindoll
102The 3 M’s - Mindset“Successful trading requires us to be aware of our emotions. It often requires us to go against our natural inclinations or emotional responses in order to see profits.”
103The 3 M’s – Mindset Greed Fear Caution Moderation Greed Fear Greed – driving emotion at market tops.It is desire to make quick profits - typical “get-rich-quick scheme”It is overconfidence – string of winning trades leads to feeling of invincibility. Results in more risk taking & inevitable losses.Many traders fall into the leverage trap – CFDs & SSFs for this reasonLeverage can be highly beneficial if risk is managed.It is “irrational exuberance” that pushes markets beyond their true value.Its extreme form results in a “bubble”Fear – driving emotion at market bottomsIts extreme form becomes panic during market crashes.ModerationGreedFear
104Trading Investor Make WEN Charting Money Day Technical Trading AnalysisSwing TradingTraderPositionTradingEquitiesSSFCFD
106CFD Product Description Derivative - A contract whose value depends on (or derives from) the value of an underlying share e.g. share – ANG, BIL, SOLGo ‘Long’ & ‘Short’ with CFD’s on Top 100 JSE listed sharesMargin deposit requirements15% Top 40 shares / 17.5% on next 60 sharesVariation margin required for adverse share price movement.Brokerage = 0.4% per transactionBreakeven = 0.92% (VAT included)Zero USTFinancing at competitive rates:Current borrowing rate 6.50% (± Prime – 2%)Minimum Exposure per trade of R (R4 500 margin)
107Top 100 Shares: CFD Margin 15% Top 40 17.5% Next 60 List reset after each Quarterly futures Close out
108Important notes on CFD Long & Short Positions Pay interest at SAFEX % p.a. (± Prime -2%)The holder will receive a synthetic dividendDividend is not earned tax free as a CFD is a derivative contractIn the case of a Long CFD, a holder of a long contract will be paid an amount equal to the dividend by issuer.This is seen as an income and is subject to taxYou pay a script lending fee of 1.5% p.a. (Min R456)Receive interest at SAFEX % p.a.The holder is liable for the dividendDividend is not earned tax free as a CFD is a derivative contractIn the case of a short CFD, a holder of a short contract will have to pay the dividend to the issuer
109Pro’s & Con’s of CFD Trading AdvantagesDisadvantagesLow trading costsNo expiry dateHedge your current portfolioAll the benefitsGearing & RiskNo voting rights
110Comparison with traditional shares CFDTraditional EquityNo physical equity holdingDo not pay USTNo voting rightsEarn synthetic dividendsPhysically hold equityPay UST of 0.25%Voting rightsEarn real dividendsLeveraged tradingSettle only collateral (15% %) plus top-up if requiredGearing provided at cheap rates (Safex +2% or roughly Prime -2%)Not leveragedMust settle full exposure amountExpensive to borrow against sharesSettlement PeriodSettled T+1Settled T+5TaxationConsidered a TraderAdded to personal income(Trading Instrument)Capital Gains Tax (CGT)(Investment Instrument)Easy to shortSuitable for both hedging & trading opportunitiesTypically long only
111What are SSFs? A standardised contract. Of a standard quantity (100) of a specific underlying listed shareRequires a fixed margin deposit to open a position (around 15% of the total value).Expiring on a predetermined future date: Third Thursday of every March, June, September & December.Gives the owner the right to close the contract at a price agreed when entering the contract, including all relevant dividends & interest.SSFs are listed on the South African Futures Exchange (SAFEX), a subsidiary of the JSE.SSF contracts equate to100 shares of the underlying instrument.SSFs are created at the close of trading.All unmatched SSF orders expire at the end of the trading day.All partially matched orders will be cancelled at the end of the day.
112Comparable to Equities INVESTOR B (SSFs Trader)INVESTOR A (Share Trader)Confident that Sasol shares will increase.Confident that Sasol shares will increase.Sasol’s share price is R350, therefore she buys 1 contract.She has R which she can invest.The initial margin set by the broker is R6 000 which is paid by the buyer.Sasol’s share price is R350, therefore she buys 100 shares.After 3 months the price has increased by 10% & the investor closes out his position & sells out of the Sasol SSF contract.3 months later the price has increased by 10% so she sells her shares to make a R3 500 profit.His profit is R but his return on his investment is 58%.Her return on her investment is 10%.
113Comparison between SSFs &CFDs Single Stock FutureContracts for DifferenceRegulated by JSE/FSBExchanged traded productExpiry Date= Rollover costsSet principle amountInterest agreed upfrontWholesale interest ratesBest executionFree marketsTransparentGuaranteed by SAFCOMNo dividend paid/receivedFungible financial instrumentCan take physical deliveryUnregulatedTrades OTCNo Expiry DatePrinciple amount could change dailyInterest fluctuates dailyRetail interest ratesNo best execution obligationCaptive marketsOpaqueNot guaranteed by SAFCOMManufactured dividendsNever physical delivered
114SSF Margin Initial margin Top 40 – Central per contract Next 60 – TraditionalInitial marginpercontract
115(Central) SSF Order Book Top 40 Shares ALSI & ALMICopper, Gold, Platinum & SilverWTI Crude Oil
116(Central) SSF Order Book Margin = R27 000Exposure = RCost R25 per contract100 points move = R1000
117(Central) SSF Order Book Future Price = Spot Price X 1 + (IR x t)
160Technical Check List What is the direction of the JSE Overall Index? What is the direction of the Sector Index?What are the weekly/ monthly sector /share charts showing?Are the primary, secondary & minor trends up, down or sideways?What are the important support & resistance levels?Where are the important trend lines & channels?Where are the 33%, 50% & 66% retracement levels?Are there any price gaps, and what type are they?Are there any major reversal patterns visible?Are there any continuation patterns visible?What are the price objectives from these patterns?Which way are the moving averages pointing?Are the oscillators overbought or oversold?Are there any divergences apparent on the oscillators?
168The 3 M’s - Money Management "The most important thing is money management, money management, money management. Anybody who is successful will tell you the same thing."Money Management is one of the foundations of trading well.Remember - if you lose your trading money: no more trading.Of all the mindset problems we face, most of them come back to this area, managing our money.As people, money tears at our emotions .To manage your money well, you need to be disciplined.Marty Schwartz
169"Do not focus on making money; focus on protecting what you have.” The 3 M’s - Money Management"Do not focus on making money; focus on protecting what you have.”…Paul Tudor Jones
170The 3 M’s - Money Management Capital allocation (Position sizing)For each trade, how much of our capital do we commit?Trade with 50% of total capital (Earn interest & Variation Margin)Position Size - Number of Contracts/ SharesSetting stop lossesFor each trade, where do we place our stops?Initial Technical Stop (Support & Resistance)
171Money Management Position Size & Margin (Harmony) You decide to buy Harmony Gold at R80.10You set a 3% stop loss (R80.10 x 3% = R2.40 )R80.10 – R2.40 = R77.70You are willing to risk 2% of your capital = R2000.Take R2000 & divide it by the R2.40 per share that you are riskingYour position size = you can buy shares(R2000 / R2.40).The SSF initial margin required is R833 shares = 8 contracts = R x 8 = R11 100Exposure = 8 x 100 x R80.10 = R
172Money Management Position Size & Margin (Anglo) Assume you have a R CFD trading accountYou decide to buy Anglo’s at R339.05You set a 3% stop loss at R328.88R x 3% = R10.17 (R – R10.17)You are willing to risk 2% of your capital if the trade goes wrong = R2000.Take R2000 and divide it by the R10.17 per share that you are risking.That gives your position size.In this example, you can buy shares (R2000 / R10.17).Margin = 197 x R = R x 15% = RFor SSFs, the initial margin will be R5700 x 2 contracts = R11 400
173CFD Order Book Buy 100 Anglo shares @ R339.05 Exposure = R15% Margin = R100 Anglo shares = R0.4% Brokerage = R135.6214% VAT = R18.99Total = R154.61R x 6.5% = R /365 = R6.04
174Risk Management The Stop-Loss Strategy The spot that represents maximum loss that you will take on a trade.Original trade idea was incorrect.The market tells you when it reaches the stop loss point.Cut your losses & move on.
175Risk Management Technical Stop-Loss Strategy The stop-loss comes from the chart.It is the first thing one needs to know about any particular trade.Can decide how many contracts to trade so as not to exceed the maximum loss per trade he has determined in the trading plan.First step to following your stop.Have a contract size you can live with.
176Risk Management Technical Stop-Loss Strategy Placed at a logical point on the chartBreaking of a support or resistance levelBreaking of a trend lineHighly recommended because the chart “tells” you where to place the stop.
178Step 1: Setup Price (Trigger) SelectPrice WatchEnterTechnicalPriceSelect “Below” for Longs
179Setup the Stop Order (Bullet) EnterWorse-case scenario priceSelectStop OrderEnterQuantitySelect “Close”Click Submit Price Watch & Stop Order button
180Summary: Trading Step 1: Financial objectives Step 2: Watch List of potential winnersStep 3: MindsetStep 4: Method of TradingStep 5: Money & Risk Management
181“Many know, few do” Justin Cohen Commitment to Action! You have attended two presentations over two days and you may think that you have done the work.That is why I am making sure that after every presentation that I do, each member of the audience makes a commitment to taking some action to improve their investment or trading performance.You have spent 6 hours attending this course, make it worth the time, what one thing are you going to do to raise your game?
182Conclusion Have you learnt how to “Make Money?” Feedback Forms Link to MarketWorx presentationsWill be available soon!Open a Trading Account with PSG OnlineOnline Trading CourseEquity & SSF SimulatorResearch ToolsDataShare p/mSoftware is FREE!Good Luck & Happy Trading!