When stock price rises, for those who had already bought should only follow their trading plan, and hold on to the positions as long as the stock price is supported by the dynamic support. When stock price falls below the dynamic support, take profit.
The above statement could not be more simple, and true. However, it is extremely hard to follow. Human emotion are the hardest thing to control and to study, when price rises, on one hand, a holder is happy, but on the other hand, he is wondering should he take profit, worrying that this could be the highest level.
After trading for many years, one should already learned the truth, which is no body can forecast when is the exact top or bottom. Therefore, just forget about the top and bottom, and focus on the middle where the trend is still in place. This is where trailing stop comes in handy. To prove this theory, let's study our previous case studies, and examine the effectiveness of using trailing stops, Axiata – 6888.
Chart 1: Axiata, as at 16/6/2010.
As indicated by A, price of Axiata broke above the 14, 21, 31 EMA, and now set to test the RM3.95 resistance. Technically, price has to break above the RM3.95 resistance with the continuation support of the 14, 21, 31 EMA, then only it would resume its uptrend.
Chart 2: Axiata, as at 30/06/2010.
As shown on chart 2, price of Axiata failed to break above the RM3.95 resistance and retreated slightly. However, it is temporary supported by the 14, 21, 31 EMA, thus suggesting that there is still a chance of re-testing the resistance. If price should break below the 14, 21, 31 EMA, the technical outlook would turn bearish.
Chart 3: Axiata, as at 08/07/2010.
As shown on chart 3, the weekly chart of Axiata shows that price remains consolidating between the RM3.95 resistance and the 14, 21, 31 EMA dynamic support, thus the overall uptrend is still intact, but with limited upside room, unless a valid break out above the RM3.95.
Chart 4: Axiata, as at 14/07/2010.
As shown on chart 4, after being supported by the weekly 14, 21, 31 EMA, price of Axiata breaks above the RM 4.00 resistance, and resumes its uptrend. Technically, as long as it is still supported by the 14, 21, 31 EMA, it is a good idea to hold.
Chart 5: Axiata, as at 28/07/2010.
After breaking above the RM4.00 resistance, Axiata breaks away from its consolidation, and resumes its uptrend. Now, price is resisted at RM4.20, but as indicated by A, the 14, 21, 31 EMA dynamic support remains in position, thus the immediate technical outlook is still intact. If price should break above the RM4.20 level, the bullish outlook shall remains intact, and investors are advised to hold on to their position as long as the 14, 21, 31 EMA dynamic support is still in effect.
Chart 6: Axiata, as at 01/09/2010.
As shown on chart 6, after breaking above the RM4.20 level, price of Axiata continues to make new high, while supported by the 14, 21, 31 EMA dynamic support. This shows that during the course of this uptrend, the 14, 21, 31 EMA has been serving as a trailing stop reference, and therefore, when investors raises their stop loss level according to the 14, 21, 31 EMA, their risk of trading is getting smaller and smaller, while protecting their profit.
Chart 7: Axiata, as at 06/10/2010.
As indicated by A, price of Axiata retreated after being resisted by the RM4.60 resistance level, and currently stays in its consolidating stage, while supported by the 14, 21, 31 EMA dynamic support. This suggests that the uptrend is still in place. However, since price of Axiata is no longer forming higher low, which is an important uptrend characteristic, the technical outlook is now uncertain.
Technically, when price is moving in sideways manner, it is not an ideal buy signal, until a valid breakout. Therefore, it is usually best not to do anything at this moment,, or if any one if feeling uncomfortable, and partial profit taking (selling 1/3) is a good idea, for the uptrend has not been violated, as there is still a chance for price to retest the RM 4.60 resistance.
| 4 Q Rolling PER | 14.45 times | Dividend Yield | 0.00% |
| Dividend | Dividend Yield | ||
| 31/12/2009 | 0 sen | 0.00% | |
| 31/12/2008 | 0 sen | 0.00% | |
Table 1: Axiata – 6888, yearly dividend, dividend yield, and net profit ratio.
Conclusion:
In conclusion, after buying any stock, as long as the stock is still rising and supported by the 14, 21, 31 EMA, or other forms of dynamic support, there is no hurry in taking profit, despite that stock price is high. There is really no one can predict when is the absolute top, and therefore, it is basically a waste of time in worrying about the top. Therefore, the practical way is to make sure that our downside movement is protected by using a trailing stop reference, and as long as the stock price is still rising, let the profit grow.
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