Harnessing The Power of Trend Lines in CFD Trading
How do you draw trend lines? What are channels and how do you use them in your CFD trades? To answer some of these questions and more, Phillip CFD held a joint seminar with ShareWheel on 19th March 2011 to coach clients the basics of technical analysis. The speaker for the day was Mr Julius Peh, a full-time trader and trainer for ShareWheel (a subsidiary of T3B Holdings).
Attendees were first introduced to CFDs by Mr Luke Lim, Manager of Phillip CFD, who presented on the basics and mechanics of CFDs followed by quizzes. As Peh is a chartist, he believes that technical analysis suits his investment method which he shared more about with the participants.
After learning about technical analysis, many people tend to forget the basics by over-analyzing charts after drawing in Fibonacci retracements and putting in several indicators. As such, Peh stressed that the two important things to note in any chart is the direction and duration of the trend lines. Fundamentally, an investor must first know how to draw these lines. For major trend lines, an investor can draw a line across two peaks or troughs on the daily candle chart over nine months to a year’s worth of data. The ‘third’ line would be the projected point and this would help in long term trade decisions. However, one should not draw these lines to infinity as they look messy on the charts and are not really helpful in making trading decisions.
Furthermore, Peh explained further that the intermediate trend line is drawn on the same chart but it has to touch at least three points. The more points the line touches, the stronger it is as a support or resistance and therefore, the stronger the trend. Minor trend lines have shorter durations and these are useful to indicate entry points. Answering one of the audience’s question on whether he line has to touch all the tails or the bodies of the candles, Peh said that it is best to have the trend line touch all the tails but it is alright if one of the tails sticks out.
After going through the basics of drawing these trend lines, Peh went through some common trend line patterns like ‘channels’ and ‘bull flag’, as well as how to make use of these trend lines to enter a trade. He also emphasized the importance of knowing how to manage one’s risk and money when investing. One of the risks is losing the principal investing amount when entering into any trade. Peh stressed that the investor must have a stop loss strategy and the rule of thumb is to put it at 5-10% of one’s total account.
Once a trade starts to become profitable, investors should move their stop loss up in order to protect his or her profits. Peh also taught the audience how to estimate one’s target profit price by using the length of the ‘pole’ in the bull flag entry point. For the final session, Peh introduced ShareWheel’s free management tool where participants can register and use to easily calculate whether they are over-leveraging, the level of risk when putting in an additional order, capital allocation and the remaining equity the investor has. This tool is easily accessible at www.sharewheel.com.
If you are ready for the next stage in technical analysis, Peh will be conducting the intermediate course on 16th April. More details can be found via www.phillipcfdchartpatternapr11-PR.eventbrite.com.
