Example 1:
Chart 1: Bursa [1818] chart from 5th of October 2006 to 5th of March 2007.
As indicated by A, price of Bursa [1818] formed a Higher-low above the rising 14, 21, 31 EMA, which is serving as the dynamic support. This is a first "buy" signal (RM 6.15) suggesting a formation of an uptrend. As price of Bursa is rising, the 14, 21, 31 EMA is also rising while continue serving as the dynamic support.
As shown on the chart above, there were many corrections, but after each correction, price is forming more higher-lows above the rising dynamic support. Therefore, for those traders who are holding stocks, they should gradually lift their original cut-loss level (RM 6.15) according to the rising 14, 21, 31 EMA, this has gradually helped these traders or investor to retain their paper profit.
As indicated by B, price of Bursa corrected again, and this time, it broke below the 14, 21, 31 EMA. Therefore, a disciplined trader will need to execute his trading plan and take profit (RM 10.90). This is what it means by "Plan Your Trade and Trade Your Plan.".
As shown at the above example, a disciplined trader could not buy at the lowest nor sell at the highest. However, by using Trailing Stop method, he is taking a minimum risk while riding most part of the uptrend. If he has bought at arrow A (RM 6.15) and sold at arrow B (RM 10.90), he is making a profit of RM 4.75 or 77% (excluding commissions and charges). In contrary, if traders failed to take profit as planned at arrow B, he might have bee caught by the reversal, and lost his paper profit or even turn his profit into losses.
Example 2:
Chart 2: KNM [7164], chart from 28th of September 2007 to 26th of March 2008.
As shown at Chart 2 arrow A, after a round of correction, price of KNM retreated but was supported by the 14, 21, 31 EMA, and then it rebounded, forming a Higher-low, thus a "Buy" signal (RM 5.10), with an immediate cut-loss level at RM 4.58.
As price started rising while supported by the 14, 21, 31 EMA, traders can lift the original RM 4.58 cut-loss level to RM 5.10. As indicated by B, price of KNM rebounded and continue its uptrend, after a consolidation, while still supported by the rising 14, 21, 31 EMA, forming another Higher-low. Therefore, traders can lift the RM 5.10 cut-loss level to RM 5.80.
As indicated by C, price of KNM corrected again, but this time, breaking below the 14, 21, 31 EMA, and therefore, a "Sell" signal (RM 6.80), and for a disciplined trader whom applied the Trailing Stop method, it is time to take profit.
After breaking below the 14, 21, 31 EMA, price of KNM attempted to test the 14, 21, 31 EMA again, but every time it tested the 14, 21, 31 EMA, it formed a lower-high as the 14, 21, 31 EMA is now serving as the dynamic resistance instead, thus suggesting a downtrend, as indicated by D. In other words, as long as price of KNM is still trading below the falling 14, 21, 31 EMA, the downtrend is expected to continue. If traders failed to take profit as planned, they would have been caught by the reversal of trend, thus turning their profit into losses.
The above KNM examples shows how important it is for a disciplined trader to execute the honor his trading plan. With a sound trading plan, he has no worry about when to sell his positions, and the Trailing Stop method also prevented him from holding his positions when the trend reserves.
Case Study Example on Trailing Stop:
Chart 3: AMMB [1015], as at 3rd of April, 2009, closing price : RM 2.63.
As shown on chart 3, price of AMMB is forming an uptrend with T1 being the uptrend line. As shown by circles A, B, and C, price is forming higher-lows while supported by the T1 uptrend line. Therefore, these are the reference level in which traders can adjust their cut-loss level gradually higher as a Trailing Stop method. In addition, trader could even top-up their position as price rebounded at these levels.
Currently, price of AMMB is testing the RM2.70 resistance. If it should break above RM 2.70 with significant increase of volume, it would be a 6 months new high, thus another "Buy" signal. For those investors or traders who are still holding their positions, they should lift the profit-taking level from C to the level as indicated by D, which is the 14, 21, 31 EMA. As for traders or investors whom decide to buy at a break out, the level as indicated by D would be an immediate cut-loss level.
Fundamental of AMMB:
| Major Shareholders | Shares | % | |
| 1 | ANZ Funds Pty. Lltd | 521,926,229 shares | 19.17% |
| 2 | HDM Nom. Pl. Sec-AMCORP Groupd Bhd. | 275,000,000 shares | 10.10% |
| 3 | EPF Board | 245,264,100 shares | 9.01% |
| 4 | AMCGroup Bhd. | 199,635,083 shares | 7.33% |
| 5 | HSBC (AS)-TNTC-M&G Global Basic Fund | 68,000,000 shares | 2.50% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 2008 | 6 sen | 1.56% | 11.13% |
| 2007 | 5 sen | 1.33% | -3.38% |
| 2006 | 5 sen | 1.77% | 7.34% |
| 2005 | 4 sen | 1.42% | 4.35% |
| 2004 | 4 sen | 0.99% | 5.20% |
Based on the RM 2.63 closing price:
| Price Earning Ratio | 7.89 times | Dividend Yield | 2.28% |
As shown on the table above, AMMB is not considered to be a high-yield stock, thus usually not a first choice of long-term, high dividend yield investors. Therefore, this is more suitable for medium term traders, whom has to equipped himself with the skills of Technical Analysis, and apply a proper trading plan.
In conclusion:
Investors or traders must have a sound trading plan before deciding to buy any stocks, and the most effective way is to apply a Trailing Stop method. Although, using Trailing Stop method, investors or trader usually can not buy at the lowest, nor sell as the highest, it is still a best trading plan for it help traders to reduce their trading risk while maximize the length of riding with the uptrend. In addition, it also prevent traders from stubbornly holding on to their position when the trend reverses.
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