In reality, technical analysis is nothing but a statistic of stock data, open, high, low, close and volume. Since the changes of price is governed by the emotions of buyers and sellers, the imbalanced of greed or fear will result in fluctuation of price. If a stock is well-participated, with normal volatility, and not trading at minimum bids, it is likely that it will form repeated patterns, like uptrend, downtrend, triangles, wedges, double tops, head and shoulders top, etc.
With the above criteria, such as liquidity and normal volatility, traders can actually study these stocks for their repeating similar behavior, then taking advantages when opportunities arrive. Although this is highly workable, the number of stocks in Malaysia with repeatedly recognizable patterns are not much.
When the market direction is unclear, and when there is no clear signals, or simply when there are not sufficient criteria to give a trading signal, the best thing to do is not to trade. It is crucial to know that trading is not a job in which you are required to physically working hard (trading hard), and the frequency of buying or selling does not mean one is doing better than the other. To some losers, not trading is losing opportunities, and they feel the strong urges to trade, at any given market situations, this explains why many people hunger for trading tips, or computerized screening method to find stocks to trade.
In additional, many trader prefer exploding stocks, with sudden surging price. However, they had ignored that most of these stocks have low liquidity most of the time, and some are fundamentally unsound. Furthermore, there are no recognizable patterns, and one has no idea when is the explosion, and the worst thing is, that the downside effect of these stocks after their explosion is as great as its rally, if not worse. It is kind of like betting on a lottery ticket. When some body wins, all the attentions is at the winner, but all had forgotten that there are losers everyday, and only a few winners once a while. So, it means a majority of traders who bet of the explosion of the stock too early will lose most of their money, while only a small amount of trader will make some profit from the quick and short life rally, and the cycle of this betting game goes on and on.
Authentic technical analysis are humble, low profile, and low risk. When stock is trending up, traders use trailing stops to profit paper profit, while at the same time, reduce trading risk. When stock is trending down, the only wise thing to do is to avoid the stock at all. To illustrate this concept, below are examples of case studies of Bjcorp that we had published in news papers in the past few months, and you can see from these examples how authentic technical analysis works. You will find out that technical analysis is not rock science, it is only a very simple concept of trend following method. But the most difficult part is the patience of traders, and the traders themselves.
Chart 1: Bjcorp, as at 28/04/2010.
As illustrated by L1, price of Bjcorp formed a lower-high, which is a first sign of a possible downtrend formation. As indicated by A, if price should break below the 14, 21, 31 EMA, the previous uptrend will be violated. [read more . . .]
Chart 2: Bjcorp, as at 5/5/2010.
The L1 line on chart 1 indicates lower-high, and as indicated by A, price of Bjcorp breaks below the 14, 21, 31 EMA, ended the previous uptrend, and now begins its downtrend, with negative technical outlook. [read more . . .]
Chart 3: Bjcorp as at 2/06/2010.
As shown on chart 3, price of Bjcorp is still trending below the T1 downtrend line, and temporary supported by the RM1.45 support level. However, technical outlook remains weak as long as price is still below the 14, 21, 31 EMA and the T1 line. If price should break below the RM1.45 level, it would mark a continuation of the downtrend. [read more . . .]
Chart 4: Bjcorp as at 9/06/2010.
As indicated by A, price of Bjcorp fell below RM1.45 support, this means that all traders who had bought above the RM1.45 level are now losing money, and as a result, most of these traders wanted to break even, thus creating more selling pressure. Technically, the downtrend continues, with negative technical outlook. [read more . . .]
Chart 5: Bjcorp as at 21/07/2010.
As shown on chart 5, the 14, 21, 31 EMA dynamic resistance remains intact, and as long as price is still below the dynamic resistance, the technical outlook shall remains negative. In other words, there is no ideal buy signal yet. [read more . . .]
Chart 6: Bjcorp as at 28/07/2010.
As indicated by A, price of Bjcorp rebounded from the RM0.995 support, but this is only a technical rebound, not a trend reversal yet. The idea buy signal would be the price breaking above the 14, 21, 31 EMA, with higher low formation, and preferably with strong volume, then immediately applying a trailing stop using the 14, 21, 31 EMA below the price movement. However, until the above mentioned is sighted, no buy signal. [read more . . .]
Chart 7: Bjcorp as a 25/08/2010.
As shown on chart 7, price of Bjcorp failed to break above the 14, 21, 31 EMA despite its technical rebound in late July. Although price has been moving sideways for about 1 month around RM1.00 level, the 14, 21, 31 EMA is still serving as a dynamic resistance, thus the immediately technical outlook is still negative. Therefore, there is no ideal buy signal yet. [read more . . (mandarin only).]
Chart 8: Bjcorp as at 15/09/2010.
As indicated by A, price of Bjcorp breaks above the T1 downtrend line, breaking away from its downtrend, with a formation of a higher-low. However, volume traded was not significant, thus suggesting that the new buying interest is insufficient to off set the strong selling pressure. Since price of Bjcorp has been falling for 5 months, and losing about 50% in its share price, it is likely that the selling pressure remains strong, and therefore, it is difficult for the price to form a sustainable uptrend right now. Rather, a better chance for a trading range formation. [read more . . .]
Revision of last week's Case Study: Bjcorp – 3395: Many overhead resistance.
Chart 9: Bjcorp – 3395 (2/04/2010 ~ 22/09/2010 )
As shown on chart 9, price of Bjcorp breaks away from the T1 downtrend which started in April, but temporary resisted at RM1.15. Since volume is still relatively lower after breaking above the T1 line, it implies that the buying interests is not enough to off set the ready sellers which were accumulated during the 5 months low downtrend, as these losers are getting ready to break even.
Technically, if volume should remain low, it is likely that price to form a trading range. If price should begin falling after resisted by RM1.15, then the crucial support would be at RM0.925. If price should later break below RM0.925, it means all traders, including those who managed to buy at a bargain, would become losers, thus the chance of falling into a downtrend is high.
In short, price of Bjcorp has to stay above the 14, 21, 31 EMA, or the immediate technical outlook would turn negative again. If later there is no formation of higher-low, or no signs of an sustainable uptrend, what is the point of holding?
| 4 Q Rolling PER | 56.61 times | Dividend Yield | 0.88% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 30/04/2010 | 1 sen | 0.79 % | 1.23% |
| 30/04/2009 | 3.35 sen | 3.99 % | -0.83 % |
| 30/04/2008 | 9 sen | 8.11 % | 17.20 % |
| 30/04/2007 | 0 sen | 0 % | 5.75 % |
| 30/04/2006 | 0 sen | 0 % | -24.33 % |
Table 1: Bjcorp – 3395, yearly dividend, dividend yield, and net profit ratio.
Conclusion:
Instead of colorful automated trading system, and over trading, a sober trader should be focused, and understand the characteristic of uptrend and downtrend, together with some fundamental of the company, and lastly, trade with the direction of the broad market. Other than the necessary knowledge and the required trading skills require, a right mindset coupled with patience is also important.
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