TREND TRADING

TREND TRADING
Daryl Guppy
www.guppytraders.com
Author of
Share Trading, Trend Trading, The 36 Strategies of the
Chinese for Financial Traders, Guppy Trading, 趋 势 交 易 大 师 ,
图 表 与 交 易 , 股 市 投 资 36 计 , 市 场 交 易 策 略
2011 AIA National
Investors Conference

Outline
•Portfolio theory, allocation and activity
•Using indicators for analysis
•Understanding common technical indicators
•RSI
•MACD
•Where is the risk?
•Risk, Reward
•RRRatios – essential for investors

TREND TRADING OBJECTIVES

PORTFOLIO STRATEGY SHORTFALL
• Modern portfolio
theory assumes
risk and reward are
equally balanced
• Diversification
means winners will
compensate for
losers – a balanced
portfolio
• Cruel law reality
-10+10= -9

GOLD MINER OR PIRATE?

Analysis challenges

EVIDENCE CHOICES
1.Weight of evidence
2.Independent verification
from different
measurement methods

TESTING RELIABILITY
Look for clear breaks, then match indicator compatibility
Assess all indicator signals – not just the ones that work
Macd

TREND REVERSALS
Miss the change and you miss the lot
Confirmation of trend change

OSCILLATOR SECRETS
Designed to remove the
signal lag – most
useful for traders

OSCILLATOR CONCEPTS
• Based on return to the mean from extremes of
over sold or over bought
• Area around the mean is ‘noise’
• Activity at the extremes provides analysis points
• Divergence is powerful analysis

RSI CONFIRMATION
Technical indicator signals
apply across all markets

RSI divergence zones
Classic Double bottom RSI double bottom
Strongest
Weakest

RSI divergence zones
Classic Double top RSI double top
Strongest
Weakest

MOVING AVERAGES
Basis of classic trend
analysis and the
basis of many
advanced indicators

BETTER THAN AVERAGE
US investment averages
are historical
curiosities, not trading
solutions

MACD CONSTRUCTION
Statistical elegance

Drilling into averages
MACD HISTOGRAM

MACD ELEGANCE
Multiple whipsaws
Where is the signal?
Reliability counts

TRADING STRATEGY
IDENTIFYING RISK

Where is the risk?

STUPIDITY PROTECTION
Despite your best analysis and
research efforts you are often wrong
Do not pay too much for your mistakes

GUPPY 2% Rule
The risk in a single trade
should not exceed 2% of
total trading capital

Trade
capital risk
1. Entry 11.10
2. Stop loss 8.10
3. 27% loss
4. Risk is how much you lose
as a % of total trading
capital.

RISK AND POSITION SIZE
1. RISK = Entry (2.82) – CBL stop
(2.58)
2. POSITION SIZE = 2% rule
applied to Dollar risk

RISK AND POSITION SIZE
CALCULATIONS
1. Enter 2.82
2. Stop loss
2.58
3. Maximum
position
size 8,333

RISK AND POSITION SIZE
CALCULATIONS – Reduce risk
1. Enter 2.82
2. Stop loss
2.58
3. Reduce
risk
4. Maximum
position
size 4,167

RISK AND POSITION SIZE
CALCULATIONS – Reduce cost
1. Enter 2.82
2. Spend
$14,946
3. Stop 2.58
(2.44)
4. Risk
$1,272

RISK REWARD RATIOS
1. RISK is one third of the equation
2. REWARD is the second third of the
equation
3. The RISK/REWARD RATIO tells us how
much we put at risk chasing a given
reward
4. Setting a reward level is a defined process

RRR trend
1. Calculate the price
for 1:3 RRR
2. Need 15.00.
3. It reached 19.00

RRR trend

Survival success
• You manage your exposure to
the market
• You choose the risk in each of
your positions
• Success is the management of
probability

SURVIVAL AFTER THE GFC

RESOURCES
Books
DVDs

Weekly Learning update
1. Learn how to improve your trading
2. Learn the latest trading techniques
3. Explore first release indicators
4. Discover how other traders solve common problems
5. Learn the analysis and trading skills for execution
with derivatives
The internet trading Weekly from
www.guppytraders.com

DISCLAIMER
• Daryl Guppy is not a licensed investment advisor. This seminar is
presented on behalf of Guppytraders.com Pty Ltd, Australia, (ACN
089 941560), Guppytraderscomsg Pte Ltd, Singapore (200409379K)
and Guppytraderscn Rep. Office, China (22219560). This seminar
is an educational tool designed to assist you in your personal
judgment. This seminar is based on my experience of applying
technical analysis to the market and is designed to be used as a
tutorial showing how technical analysis can be applied to a chart
example based on historical sample trading data. This seminar is a
tool to assist you in your personal judgment. It is not designed to
replace your Licensed Financial Consultant or your Stockbroker.
The seminar has been prepared without regard to any particular
person's investment objectives, financial situation and particular
needs because course attendees come from diverse backgrounds,
with diverse objectives and financial situations. All material is
• copyright.

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