Chart 1: FBM KLCI, chart from 8/10/2009 to 3/2/2010.
As shown on chart 1, the FBM KLCI started its high volatile technical correction after breaking above the 1300 mark briefly, and as a result, the KLCI fell below the 14, 21, 31 EMA, which is now serving as the dynamic resistance. However, as indicated by A, the KLCI is still supported by the 1250~127 level, and temporary consolidating from its downward movement. But despite its consolidation, the KLCI is still resisted by the falling dynamic resistance, thus the immediate outlook is bearish biased.
If the KLCI should rebound from the 1250 and break above the 14, 21, 31 EMA, together with the increased of market volume above the 40-day VMA level, the KLCI should have a chance to regain some strength. Other wise, if the KLCI should break below 1250, more downside movement is expected.
When the broad market is weakening, individual counters tend to be weak as well, and therefore, investors should follow the broad market direction, and never trade against it. A smart investor should have his/ her trading plan well laid out before buying any share, and when price should trigger the cut-loss level, it is only logic to act upon it, to avoid unnecessary risk.
Chart 2: Airasia, chart from 7/1/2008 to 24/06/2008.
As indicated by A, the Bollinger Bands Width re-expanded, with price of Airasia below the Bollinger Middle Band, thus signaling bullish biased signal, and investors can choose to buy with this signal, with the first cut-loss point at the Bollinger Middle Band. As indicated by B, price of Airasia fell below the Bollinger Middle Band, thus triggered the cut loss point, and investors should honor their trading plan and cut loss (RM 1.56).
As pointed by C, D, and D, the Bollinger Bands contracted and re-expanded but every time it expands, price is below the Bollinger Middle Band, thus suggesting the downtrend is still intact. If investors should failed to cut loss at arrow B, he or she would suffer a great loss by holding on their shares in the downtrend.
Cutting Loss Promptly:
No body could forecast the future movement of the market, regardless of what methods they use. One could only apply studies and analysis with statistic. One should understand the reality that investing has not perfect formula nor short-cut methods, nor any automatic stock picking softwares. Investment is personal professional business, which requires skills and experience, and lots of hard work. Therefore, investing is more than picking the right stock, it is all about trading plan.
Any reasons can cause the stock price to fall, but the only reason why investors lose money is because they never cut-loss. The highest risk in trading is not the high or low of the stock price, but not cutting loss.
| Loss | % to Break-even |
| 10% | 11.11% |
| 20% | 25% |
| 30% | 42.86% |
| 50% | 100% |
Table 1: % to recover after a loss in order to breakeven.
As shown by Table 1, if an investor cut loss after losing 10%, he will get 90% of his remaining cash, and he could start over again when the same stock or another stock gives him the right signal to buy. If at the next trade, the stock forms an uptrend, all he needs is a gain of 11.11% to regain all his previous losses. Therefore, recovering a 10% loss is not difficult, and provided the investor has cash, there will be opportunities.
However, if one should failed to cut loss and if the loss is 50%, it will be too late. Because, if a stock price should fall 50%, it need to regain 100% just to get back to the original level. In other words, if one cut loss after losing 50%, he will only have 50% in cash, and he need to buy a stock that could rise 100% in order for him to break even. Compare 100% and 11.11%, and you shall see the reality and probabilities of winning. Reducing trading risk, is actually also increasing chances of winning.
Last week's Case Studies Review:
AMMB
Chart 3: AMMB, chart from 11/09/2009 to 3/2/2010.
As indicated by A, after breaking below the 14, 21, 31 EMA, price of AMMB rebounded from its RM4.70 support, and temporary stopped the decline and consolidated. However, as indicated by B, the 14, 21, 31 EMA is still falling while serving as its dynamic resistance, therefore, the technical outlook for AMMB is now bearish biased. Technically, all rebound below the 14, 21, 31 EMA are only technical rebound, not a sign of a reversal yet.
In other words, if price should rebound and break above the 14, 21, 31 EMA, then there is a chance for AMMB to regain is position, and re-test the RM5.36 resistance. Otherwise, if price should stay below the falling 14, 21, 31 EMA, and break below the RM 4.70 support, it would be a signal to cut loss, because the next support for AMMB is seen at RM 4.40 level.
| 4 Q Rolling PER | 14.62 times | Dividend Yield | 1.63% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 31/3/2009 | 8 sen | 3.07% | 14.69% |
| 31/3/2008 | 6 sen | 1.74% | 11.13% |
| 31/3/2007 | 5 sen | 1.33% | -.3.38% |
| 31/3/2006 | 5 sen | 1.77% | 7.34% |
| 31/3/2005 | 4 sen | 1.42% | 4.35% |
Table 2: AMMB, Yearly Dividend, Dividend Yield, and Net Profit Ratio.
CIMB
Chart 4: CIMB, chart from 14/09/2009 to 3/2/02010.
As shown on chart 4, after breaking below the 14, 21, 31 EMA, price of CIMB has been trending lower. As indicate by A, price of CIMB is testing the RM 12.80 support level while consolidating. This suggests that the support of RM 12.80 is still effective. However, as indicated by B, the 14, 21, 31 EMA is still serving as the dynamic resistance. Technically, this suggests that the outlook for CIMB is still on the negative side.
If price should break above the 14, 21, 31 EMA, it would have a chance to break away from this bearish biased movement. If price should failed to rebound from the RM 12.80 support, it would be a good idea to reduce position, for the next support is seen at RM 11.68.
| 4 Q Rolling PER | 19.39 times | Dividend Yield | 1.96% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 31/12/2008 | 25 sen | 4.27% | 25.22% |
| 31/12/2007 | 25sen | 2.27% | 31.00% |
| 31/12/2006 | 15sen | 1.94% | 23.53% |
| 31/12/2005 | 15sen | 2.63% | 17.51% |
| 31/12/2004 | 15sen | 3.19% | 18.01% |
Table 3: CIMB yearly Dividend, Dividend Yield, and Net Profit Ratio.
Conclusion:
The biggest killer in the market is not the falling of the stock price, but refusing to cut-loss. In fact, it is very important to trading with the direction of the broad market, and provided that investors could follow their own trading plan, the risk of trading is actually limited.
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