Consider risk reward before entering trade :

Today i traded the hang seng call warrants (CW) because
the risk reward looked good…..hang seng has fallen almost 1000 points in one day while one of the cheaper CW has fallen from 30c to 4.5 within few days. So i decided to enter the trade at 4.5c as the risk reward looked good. If i am right and hang seng index rebounds, i stand to gain up to 5c or more. But if i am wrong, i was prepared to lose 1 to 2 cents only. With that in mind, i longed CW at 4.5c but unfortunately the early rebound was not sustainable and hang seng index fell 1500 points after lunch today…..so i decided to cut loss at 4c and live to fight another day. Also i do not wish to keep this CW since it will be expiring end of january 08……with time decay setting in soon the price may not move up at all since it is far below the strike price. Personally, I would suggest that one DO NOT keep warrants for more than two days especially if you are already in a losing position, should cut loss even faster.

With volatile markets like now, cutting loss is the most important thing i would say. Many stocks technical indicators have deteriorated lately and if one does not have cut loss trigger, then you are likely to end up owning many stocks for a much longer time frame than you initially thought. My usual cut loss trigger is 4 bids below buying price, on closing basis unless market is extremely bearish. Some of my friends would set 6 bids or use 8% as cut loss trigger. What ever you use, you must have your own cut loss trigger, especially if you are a trader……not like warren buffet who says that he prefers to keep stocks forever

cheers

rooney yong (email : contact@mojostock.com)

stock blog update

Technical Analysis Comments for HSI

When i look at the Hang Seng Index stock chart, i can see that it has been struggling around the 100EMA (the dark blue line - click twice to enlarge the chart), while most other major indices have already broken the 200EMA. This has already pre-warned me that HSI is likely to see more downside pressure as other major markets have already been moving downwards persistantly.

Let’s take a closer look at the HSI chart :

1. it has FINALLY broken the 100EMA of 26800 yesterday….this means that 26800 may turn from support to become resistance in the near term. In fact we can tolerate short term breakdown, but HSI must climb back above 26800 as soon as possible, preferably within one week to halt this downward momentum. this will be the first thing to watch out for. in any case the fact that it broke 26800 yesterday may have already attracted more sharks ( i mean shortists) to come in since the can see that the risk/reward is quite good if u assume the next support is what i have put on the chart (3 reference points below) :

a. 25648 - this is the 50% fibonacci retracement since the rebound of 19386 back during the august 2007 selldown

b. 24874 - this is the 200EMA - i believe this will be the strongest support for HSI, in fact that was when the market bottomed back in august 2007 during the selldown…when market hit 200EMA.

c. 24196 - this is the 61.8% fibonacci retracement level, another strong rebound points but since it is below 200EMA, we dont have to worry too much bout this level for the time being.

Other technical indicators signal :

1. multiple moving averages (MMA)

short term MMA (blue lines) are ALL below long term MMA, signaling that broad trend has been down since 7th january 2008, when ALL short term MMA move below long term MMA - based on historical data, when this happens, it will take at least two strong rebounds to halt the downward momentum

2. Directional movement index (DMI)

this has been negative since 10th december 2007 - and it remains negative until today!!

3. MACD

been struggling at positive and negative zone, just turned negative again two days ago

4. parabolic SAR

been positive for 5 days but the distance between HSI and the indicator is narrowing. this means that the positive signs are weakening. i expect even this indicator to turn negative either today or the next few days

summary :

HSI overall trend is still weak and may continue to remain weak

it may stage technical rebound or worst still intra day rebound but it has already sent the signals to shortists to short it with all these negative indicators…..

i would watch and see if HSI can goes back above 26800 and needs to stay up there a few days to regain the lost ground.

if not, the other lower reference points i provided could be the next potential support points.

article by :

rooney yong (email : contact@mojostock.com)

stock market blog