This
company stock (LSE:RBS) is currently at a turning point (a rally to be precise)
as would be shown in the technical explanation below. However, the overall
trend in this year has been largely southward. The stock had been falling
before the rally that happened in late July 2012 began. Seeing this,
institutional traders could have hedged their long positions with short orders
as well. Hedging is not a popular trading method among private traders, it is
something used exclusively by Smart Money, though some strategies employed by
retail traders use buying and selling similar instruments. The price is
satisfactorily liquid (Liquidity explained as being able to open orders and
smooth them whenever you prefer).
Technical Forecast
Looking
at the chart, from a high of up to 393.3, the price began to come down in March
2012. That was the beginning of this year’s bear market on this stock. The
bearish dive did not occur continually without some occasional bullish
retracements in the price on the way down. One retracement happened on April 27
and another noteworthy one took place from June 6 to June 18, 2012. This is a
price action that has been favorable to swing traders who were bullish on a
near-term basis. Technically, the EMA period 21 period has shown a vivid
confirmation of the primary trend on the company’s stock: Bearish. Something
interesting is, however, happening on the Stochastic Oscillator period 14. The
Stochastic reached the extremely overbought level of 0 more than a few times
during the recent southward journey of the stock. Then on July 25, 2012, the
price rose from a low of 195, resulting in serious bombardments of the bears.
The price crossed the EMA to the upside last week; thus confirming this
correction.
We
need to note that at this time, the Stochastic has reached the extremely
overbought level at 100 and is heading down. This is something that is normal
and expected to be temporary. It shows the reason why July 31 was a bearish
day. The price was at 213.7 when this article was being written. Buyers could
experience some challenges at the supply territories at 214.00 and 214.50, but
the support levels at 213.00 and 212.50 should do a good job holding the price.
The price should rally after an over-extended bear market. This is something
that has already been factored in; and this is unlike futuristic neo-Orwellian
ideology. Prices trend upwards when bulls go long and plummet when bears short
the markets. The ambitions of a myriad of bulls and bears cannot be fathomed,
whereas it is safe to say that they aim to realize some returns while putting
some check on risk. Therefore, millions of orders that are being opened would
have profound impacts on the markets, whether upwards or downwards, as the
masses take actions based on emotions.
Conclusion: For this stock, it is okay
to elect one winning trading formula. Considering the price movement on the
chart, whether as a line chart or a candlestick chart, we do well by
determining the overall bias of the market instead of coming up with some ideas
that contradict realities. This prevents your trading approach from being
complicated and running the risk of getting out of touch with realities.
Nevertheless, you would also be prevented from using too many strategies on one
portfolio, thinking that one strategy is ineffectual because of a transient
losing streak.
This
article is ended with a quote from one of the well-known trading psychologists:
“Do
you have a trading plan and are you following through on it? Do you have
trading rules? Are you practicing appropriate money management and
position sizing? When you have losses or experience other
disappointments, are you able to accept the reality and move on, or do you
wallow in self-pity, sadness, and anger? Are you following the market?
Or, do you wish, hope, pray, and otherwise try to make the market go where you
want it to go? Are you journaling? Are you logging your trades?” – Dr. Woody Johnson
NB: You would be
exposed to world-class, cutting-edge, and top-notch trading experiences here: http://uk.advfn.com/p.php?pid=register
Azeez Mustapha
Market Analyst, Trading Signals Provider and Coach
Copyright (C) ADVFN PLC
For more articles, go to: http://www.advfn.com/newspaper/technical-analysis
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