Weekly for Saturday July 11th, 2015. Based on Thursday’s Close
CONTENTS EXTRACT FROM THE FULL NEWSLETTER
CLICK HERE TO REGISTER FOR THE FULL NEWSLETTER
ANNUAL CASE STUDY PORTFOLIO REVIEW July 2014
– June 2015 – 100.39% RETURN
By Daryl Guppy
The high levels of volatility in the Australian market make any position – long or short –
dangerous because stops must be placed such a long distance away. Time in the market is the
primary risk and will remain so until consolidation develops on well defined support levels. We
treat this as a gamblers market because intelligent stops cannot be applied.
We made more use of FX markets in the past year because they reduce the time risk
and provide a better reward.
CHINA MARKET COLLAPSE
The Shanghai Index has retreated dramatically and is moving toward the longer term
consolidation area between 3000 and 3400. Despite the China market crash, our banked
profits are 165.37%. The sell-off has been faster and more severe than expected. These falls
are exacerbated by some structural features of the Shanghai market.
There are four features which increase the volatility of the Shanghai market and
increase the severity and momentum of trends – both uptrend and downtrend.
1) The first feature is the application of limit up and limit down conditions. In big
market moves stocks can be locked limit down just a few minutes after the opening
of trade. The result is pent-up demand. When the market opens the next day
frustrated sellers flood the market with lower prices desperate to get out. The
inability to exit the market feeds panic.
2) The second feature is the ban on short selling. A very limited number of stocks are
available for short selling. The vast majority cannot be short sold. This means that
the only way to make money is form the long side – buy low and sell high. Profits
only come from rising prices so it makes sense to sell and sell quickly when the
market begins to fall. It makes sense to sell and sell even more desperately when
losses start to mount. This increases the volatility of the market and the speed of
market falls.
3) The third feature is the limited trading hours in the Shanghai market. Demand is
confined to these four hours in total. When trading time is limited it easy for
July 11th, 2015
1
A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015
desperation to set in. It propels bull markets but it also propels falling markets.
Longer trading hours remove the need to act quickly and emotionally.
4) The fourth feature is the suspension of thousands of stocks from trading. Nothing is
guaranteed to induce panic selling more quickly. Investors fear that they will be
locked out of the market so they rush to sell at any price. It becomes the same
psychology as a run on the banks.
These four features all combine to distort the smooth operation of supply and demand –
of buyer and seller demand. The result is very fast uptrends and very fast downtrends.
Of course these discussions beg the question. The main focus now is on when the fall
will stop, and when is it time to come back into the market. From a technical perspective we
look for consolidation between 3000 and 3400.
JUNE OANDA FX TRADE RESULTS
Exceptional volatility makes it difficult to trade. If we are forced to move to shorter
term time frames then our preference is to look at FX trading because this gives a larger
return for the shorter time frame. Three times a week we provide trading resource notes for
Oanda based on applying the ANTS trading approach. Here is the summary results for March June.
PROGRESSIVE MARCH – JUNE ANTSYSS TRADE OPPORTUNITY RESULTS







50 trades were introduced since March 1.
35 trades triggered entry signals.
85.71% of entered trades were exited at a profit.
51.43% of entered trades were exited above trade plan target levels.
20% of entered trades were exited at trade plan target levels.
14.29% of entered trades were exited on stop below profit target levels
14.29% of entered trades were exited at a loss
July 11th, 2015
2
A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015
Once a trade entry signal is triggered the trade is exited at a profit. Exit above target
profit plus are trades were the target was achieved but there was no exit signal delivered so
traders could keep the trade open.
Exit profit on stop are trades that did not reach the trade plan target. These are
trades that were exited on a protect profit stop using the ANTS ATR trailing stop. Exits kept
the trade in profit. Access to the ANTS system is now available on the Oanda market place.
http://marketplace.oanda.com/collections/frontpage/charting Access is free if 5 trades are
completed each month.
ANNUAL CASE STUDY PORTFOLIO REVIEW July 2014
– June 2015 – 100.39% RETURN
By Daryl Guppy
Market conditions and results can be summed up with two sets of figures. It took 85
days with VAH* to generate a 19% return. It took 63 days with REC* to generate a 15.8%
return. In contrast it took 1 day to generate a 206% return with a trade in GBPAUD*. It also
took one day to generate a 262% return in GBPCAD*. These are all personal trades.
When time in a volatile market is the primary market risk then 85 days and 63 days
exposure adds significantly to risk for a relatively modest return.
FX markets have been our focus this year with 41% of the total trades made in FX or
using the ANTSSYS method with oil, gold and indexes. Only 6.8% of trades were made with
CFDs. However, although the time risk component is reduced, there is an increase in the
capital risk component. This is managed with much tighter stops, and with reduced capital
allocation to this asset class. Each FX trade is capped at a maximum of $5000. Each stock
trade is capped at a maximum of $20,000. Capping FX trades at $5000 is an effective means
of managing capital risk.
This year 68% of trades in the case study portfolio are personal trades. They are
marked with a *.
Despite the good rise in the equity market in the first 6 months of the financial year
there is also a high level of volatility. Solid trends collapse quickly. Opportunities in the mid
cap and speculative end of the market are more difficult to find because the liquidity in the
market has reduced and shifted to the upper end of the market which is dominated by
Exchange Traded Fund and high frequency trading.
July 11th, 2015
3
A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015
We used the ANTSYSS trading analysis and application methods for FX trading. These
are available to ESignal and Oanda clients.
This year the case study portfolio included 20 personal trades or 68% of all trades. The
best result came from a personal FX trade with GBPCAD*, with a 262% return on capital. The
strong market volatility called for the application of short term derivative trading tactics in
the second half of the year. The number of trades taken was a little above average at 29, and
the success rate of the trades returned to average as tight stop loss conditions were applied.
The year had a 79.31 % success rate and included 68% of personal short term trades that
were included as case study examples.
The new market conditions require closer attention to managing volatility. It also means
using leverage to get the best results so there is an increased number of FX trades.
The purpose of the newsletter is to model for readers the methods used by professional
traders in all market conditions. Our eighteen year average returns of 95.04% for the case
study portfolio are testimony to the effectiveness of this approach. We make about around 26
trades per year in the case study portfolio and this average has remained unchanged for more
than a decade. This year was 29 trades. It’s the primary advantage of private traders. We
trade only when the opportunities are at their best. Our objective is to teach readers the
methods of success so readers can apply these techniques with confidence to help boost their
trading returns.
12 MONTH ANNUAL REVIEW RESULTS
This year the case study portfolio included 20 personal trades or 68% of all trades.*
We made 29 trades for the year, a little more than the eighteen year average of 26
trades. The success rate is 79.31% which is a result of entering when momentum is strong
rather than taking higher levels of risk on breakout trades. This means that around 8 out of
10 trading choices develop into profitable trades. This is slightly higher than the 70% average
we aim for.
However, it is not the win/loss ratio that leads to success. The real basis of success lies
in the way that unsuccessful trades are handled. We rode losses very tightly over this period,
with most losses being under 2% of total trading capital. The largest loss was $2046 or 2.04 %
of total trading capital. This was in a CFD trade. Generally losses were around $1500 or 1.5%
of trading capital. This is slightly larger than previous years and reflects the difference in the
risk profile of FX trades. This caution and tight risk management is reflected in the consistent
dollar value of the loss in losing trades.
Total return for the period was 100.39% on capital. This is a realized profit of
$100,390. This means we started out with $100,000 and added $100,390 during the year.
Most equity trades were around $20,000. Generally all CFD and warrant trades were kept to
around $10,000 as this is a means of managing risk. All FX trades were kept at $5,000. NOTE
Dates show the date of the newsletter that includes the trade.
Are these still exceptional returns? This year the FX trade results boosted returned to a
higher than expected level, but in general we do not think the underlying results are
exceptional. The * note at the end of this section explains this further. The eighteen year
results show a consistent level of return that is substantially better than the performance of
the broad market index. On an eighteen year basis, we can realistically aim for around a 75%
return or more on capital or better from the market. Our eighteen year average is 95.32% and
it is achieved by careful and disciplined risk management. It is not achieved by ‘hot tips’ or by
pretending that we can select stocks more successfully than others. The single most important
lesson that traders can learn from these portfolio results is that success rests on the trader’s
ability to cut losses quickly. Even if the stop loss exit subsequently turns out to be incorrect
this does not destroy good trading results.
This report sheet includes all of the case study trades discussed during the last hyear.
We do not hide losing trades, or poor performers. We do no conveniently forget to include
some trades in the hope that readers will have forgotten about them. These results are
achievable. They can be duplicated. You might not achieve the same level of return, but the
case study trades show what is possible. They are also a powerful reason for not accepting
poor trading results.
July 11th, 2015
4
A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015
MEASURING RETURNS
We measure our returns by money in the bank. It is an old fashioned measure that
gives the trader a realistic idea of just how well he is doing. We avoid false measures of
success. There are four false measures.
 Counting open profits
Open profits are calculated by taking the last traded price and turning this into a
portfolio value. This can make us all instant millionaires – on paper. Readers will know how
some sample trades have been very profitable, but have later been closed at a smaller profit
because the exit conditions are not triggered until much later.
 Annualized returns
This is the industry standard and we believe it is misleading. The sample trade might
return 48% in just one month of trading. An annualised figure takes this realised return – the
return that was actually banked – and calculates what it would have been for the twelve
months. This translates into a whopping annualised return of 576%. This is an ‘in your dreams’
return because the trade will not be at the same price in twelve months as it was when we
made the exit.
 Pretending losses don’t count
We have been disturbed by the trend with some market commentators who pretend
that losses do not count. This approach ranges from the comment that in 10 years time, the
September 11 drop will show as a minor blip to some writers who include many stock tips, but
only track those that work out.
July 11th, 2015
5
A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015
We believe these approaches are misleading. Failed trades have a significant impact on
trading results. We get much better returns if we exclude the three losing trades. We also
exclude honesty if we do this.
 Accept poor performance because of difficult market conditions
Trading is about making the best possible use of your capital. Our capital grows by
completing profitable trades and cutting losses quickly. In the case studies, we demonstrate
the difference that this approach makes to trading results. We are not prepared to accept that
highly trained and well paid professionals cannot do better than the broad market when a
consistent application of risk management shows that better results are achievable. Losing 5%
when the market falls 7% is not a measure of success. We use a true hedge fund approach,
using zero as the absolute benchmark, and using positive returns from the market as a
starting point against which we measure our performance.
Trading is about making our trading capital work hard. If you are able to average a
10% return on each trade, then trading capital begins to build solidly. When you maintain that
steady 10% return on $50,000, then $100,000, then $150,000 and so on, then your trading
success is well established. Consistent returns enhanced by money management are the
objective of trading.
As a final note, please remember that some of these trading examples are designed to
fail because we want to show the adverse consequences of particular trading strategies. There
are many trading styles and many trading indicators. Not all of them work in Australian
markets, and not all of them work in all market conditions. It is more instructive to show how
they fail to work than it is to show only successful strategies. Understanding why strategies fail
is an important step in building successful strategies.
These case study portfolio results do resemble real world results. The newsletter is
designed to be a useful tool to help you identify trading techniques that work and to use
money management approaches that enhance your trading returns. The case study portfolio is
used as a handy running reference for these examples and shows what is possible with good
trading discipline and risk management.
The same level of sample portfolio results can be achieved by readers if they develop
the discipline to act consistently on stop loss conditions. This is perhaps the most important
single message in the newsletter. Trading is about money management, not about prediction.
Success comes from discipline, not from a set of fancy or expensive indicators. Exceptional
success comes from the confident application of the correct trading technique at the
appropriate time supported by clear stop loss conditions designed to protect capital. It is not
always easy, but if done properly, it is very profitable.
*With some reluctance we included more personal trades in the case study portfolio in
the last 12 months partly to answer some of the uninformed emails we get from trial readers
that tell us the case study examples are manipulated. It’s ironic that these allegations are
made in relation to some of the personal trades included in the case studies. Reluctant,
because we do not want to leave ourselves open to the charge that we have a conflict of
interest with our readers. Also, the case study portfolio is designed as an example of strategy
approaches and is not intended to be investment or trading advice.
TRADE GALLERY- EXTRACT
These are screen shots of every case study trade discussed from January 2015 to June
2015 showing entry and exit points. NOTE. The trade dates on the spreadsheet refer to
the date of the newsletter in which these trades appeared.
July 11th, 2015
6
A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015
FSA*
GBP/AUD*
July 11th, 2015
7
A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015
VAH*
July 11th, 2015
8
A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015
ILU*
EURCAD*
July 11th, 2015
9
A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015
EURCAD*
GBPCAD* Oanda screen
July 11th, 2015
10
A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015
NEWSLETTER AUSTRALIAN MARKET OUTLOOK July 9:
DOWN SLOPING TRADING CHANNEL CONTINUES
By Daryl Guppy
The XJO activity is best understood within the context of the trading channel. Support
near 5380 is weak and nothing to get excited about.
The current rally towards resistance near 5640 is simply part of the downtrend
behaviour.
The key additions are the parallel trend lines that create a down sloping trading
channel. This suggests resistance near 5640 and support near 5380. A breakout above this
trading channel is required to establish a genuine new uptrend.
Traders need to see compression developing in the long term GMMA before it’s safe to
start thinking long term long side trades in this market.
There are many barriers to a resumption of a new uptrend. The first barrier is the
lower edge of the long term GMMA near 5600. The upper edge of the long term GMMA is
near 5660.
These are formidable barriers and this suggests the market may continue to trend
downwards. This is rally and retreat trading, not trend trading.
DISCLAIMER AND COPYRIGHT
Guppytraderscomsg Pte Ltd (CRN 200409379K) Pte Ltd is not a licensed investment advisor. This
publication, which is generally available to the public, falls under the Singapore Media Advice provisions.
The information provided is for educational purposes only and does not constitute financial product
advice. These analysis notes are based on our experience of applying technical analysis to the market
and are designed to be used as a tutorial showing how technical analysis can be applied to a chart
example based on recent trading data. This newsletter is a tool to assist you in your personal judgment.
It is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been
July 11th, 2015
11
A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015
prepared without regard to any particular person's investment objectives, financial situation and
particular needs because readers come from diverse backgrounds, with diverse objectives and financial
situations. This information is of a general nature only so you should seek independent advice from your
broker or other investment advisors as appropriate before taking any action. The publication should not
be construed by any reader as Publisher's (i) solicitation to effect, or attempt to effect transactions in
securities, or (ii) provision of any investment related advice or services tailored to any particular
individual's financial situation or investment objective(s). Readers do not receive investment advisory,
investment supervisory or investment management services, nor the initial or ongoing review or
monitoring of the reader's individual investment portfolio or individual particular needs. Therefore, no
reader should assume that the Publisher serves as a substitute for individual personalized advice from a
licensed financial professional of the reader's choosing. The decision to trade and the method of trading is
for the reader alone to decide. The reader maintains absolute discretion as to whether or not to follow
any portion of our content. Publisher does not offer or provide any implementation services, nor does it
offer or provide initial or ongoing individual personalized advice. It remains the reader's exclusive
responsibility to review and evaluate the content and to determine whether to accept or reject any
strategy and to correspondingly determine whether any such strategy is appropriate for a reader's
individual situation. Publisher expresses no opinion as to whether any of strategy contained on this
publication is appropriate for a reader's individual situation. The author and publisher expressly disclaim
all and any liability to any person, whether the purchase of this publication or not, in respect of anything
and of the consequences of any thing done or omitted to be done by any such person in reliance, whether
whole or partial, upon the whole or any part of the contents of this publication. Neither
Guppytraderscomsg Pte Limited nor its officers, employees and agents, will be liable for any loss or
damage incurred by any person directly or indirectly as a result of reliance on the information contained
in this publication. The information contained in this newsletter is copyright and for the sole use of trial
and prepaid readers. It cannot be circulated to other readers without the permission of the publisher.
Each issue now incorporates fingerprint protection that enables us to track the original source of pirate
copies. If we find that you are redistributing the newsletter then, at our discretion, we will reduce the
length of your paid subscription by the value of the multiple copies we believe you are circulating. Share
with nine friends, and we cut your subscription period by 90%. Contributed materials reflect the personal
opinion of the authors and are not necessarily those of the publisher. Articles accurately reflect the
personal views of the authors. Stocks held by the authors are marked* and are not to be taken as a
trading recommendation. This is not a newsletter of stock tips. Case study trades are notional and
analysed in real time on a weekly basis. Any past investment-related performance .
referred to may not be indicative of future results, and therefore, no reader should assume that the
future performance of any specific investment, investment strategy will be suitable or profitable for a
reader's portfolio, or equal historical or anticipated performance level(s). Guppytraderscomsg Pte Ltd
does not receive any benefit or fee from any of the stocks reviewed in the newsletter.
Guppytraderscomsg Pte Ltd is an independent international financial education organization and research
is supported by subscription fees. Please note that in the interest of timely publication of the newsletter,
this document may be incompletely proofed.
OFFICES; Guppytraderscomsg Pte Ltd Head Office, 20 Cecil Street,#20-01 Equity Plaza,
Singapore 049705, Singapore, 22 Hibernia Crescent, Brinkin, Darwin, Australia, Room B105A17, No.14, Chaoyangmen Nandajie, Chaoyang District, Beijing, China.
July 11th, 2015
12
A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015