Based from my previous’
blogpost: $2GO dissection from Kap Kidlat’s June Trades. I mentioned there that I am
self-studying ZF system. One is thru trade dissection of successful ZFT members
and second is asking other ZFT members for help.
Whenever I dissect trades, It
gives me 2 things:
1. Clarify
what I know
2. Discover
what I don’t know
For other traders especially
those who are starting trading, maybe you can try to dissect trades too and
share if you'll discover anything.
Aside from trade dissection
and back-testing some parameters, I ask technical questions to ZFTs in order to
get something. This is part of ‘discovering’ what I don’t know. But of course,
not all technical information are shared by the Tribe, I understand and respect
that since it’s part of their system and it’s strictly confidential. It really
lies on discovering it on your own.
During those times I came
across with the “Trend Following” setup or “TF” as we call it. This is based on
ZF system. So I’ll be sharing it again to gauge my knowledge and for everyone’s
perusal.
Let’s start…
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 |
| As the saying goes... |
It sounds easy as it may seem. But
what really is it?
Let's have a knowledge check (so we're on the same boat)
From what I understand, trend
following is simply following the trend, whether up or down. AOTS or iAOTS. Of
course, we would like to trade a stock in AOTS that rallies up and makes a
decent uptrend. It’s more profitable setup but more on conservative type since
the trend’s rally will take some time to go up. After some time, the uptrend
can show signs of weakness and due to a correction or breakdown. Patience is a
virtue when riding this kind of setup.
In trend-following I’ll be
sharing, the technical indicators used are:
- Moving Averages
- SMA20 (more of this)
- SMA50 and
- SMA100
- RSI (Relative Strength Index)
- RSI 14 period
- RSI 70 upperlimit; RSI 30 lowerlimit
- Simple darvas technique
- 6mos high, 52wk high, multi-yr high and
all-time high resistances
[References]
Read here for more info about MAs, AOTS, ZS and PUA:
Moving Averages:
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Moving on, let’s talk about more of ‘criteria’ in trend
following plays based from my research.
From Boss Zeefreak’s blog entry (Swing Trading vs. Trend Following), he mentioned there the use of SMA20. Which is an effective moving
average for trend following since we can use it as a sell signal whenever SMA20
‘snaps’.
See below for a snippet from the blog entry:
 |
PXP chart May 2012
to June 2012. Sample of Trend Follower’s Chart.
|
- The formation of AOTS
- Intended max trade volume (‘Cause he’s
Zeefreaks, he has volume! :D)
- The 20SMA / 50SMA for setting stops
- The hierarchy of resistance breakouts
 |
| Trend Following Template |
To put all into a simple
criteria:
1. The
stock must have broken-out of at least the 6 month resistance
All-time
high > Multi-yr high > 52-week high > 6month high, and so on
2. AOTS
formation in daily
More
conviction if AOTS formed in weekly (longer timeframe)
3. SMA20
trail is being respected in the daily
Last resort,
SMA50 is respected
4. Sell
whenever SMA20 ‘snaps’
Or when SMA50
snaps
Timeframe: Could take a month to 3 months to 1 semester to 1 year, and so on.
_______________________________________________________________________________________
From Boss Zeefreaks’ blog example, let’s take a look at $PXP
in 2012 with those 4 criteria above.
 |
$PXP daily chart
Feb 2012 to July 2012.
|
1. Plotted
the All-time high (ATH) resistance at 14.18. Again this is the trigger point. A
breakout from these kinds of resistances will start the uptrend. $PXP broke out
of this ATH on 04/24/2017. After which, followed by momentum candles with
supported volume.
2. Month
of May 2012 $PXP transitioned into AOTS. The price is > 20SMA > 50SMA
> 100SMA. We can see here that the rally continued until July 2012. May 2012
was the start of the uptrend.
3. Let’s
take a look at the SMA20 (red line). Since the breakout from #1, the price
respected this line for 3 times and continued its rally.
4. As
for the selling, 07/17/2012 $PXP broke down from SMA20. 07/19/2012 broke down
from SMA50. These are the areas where the trend weakens. There is RSI bearish
divergence seen from May 2012 to July 2012.
Buying from 14.18 BO point and selling at 43 area isn’t
bad after all. Around +200% gain in less than 4months. :)
(Caveat. The
%gain is not always like this, though.)
But, I found out there’s an easy way to spot a
trend-following play. Where we can find the start & end of the trend.
Let’s take a look on the weekly chart of $PXP from 2012.
 |
$PXP weekly chart.
Oct 2011 to July 2012.
Highlighted in green
is the end of week of 04/27/2012.
Highlighted in red is the end of week of 07/20/2012.
|
In the weekly chart, the uptrend usually STARTS
when stock breaks out of RSI70 and WEAKENS when stock breaks down of RSI70.
Simple, right? Let’s further dissect the chart above.
1.
$PXP ATH plotted at 14.18 – the trigger point
2.
End of week of 04/27/2012, ATH breakout at
14.18.
2a. RSI breakout at 70 level.
It is confirmed from daily chart that this is the start of the uptrend.
3.
End of week of 07/20/2012,
3a. RSI breakdown at 70 level.
It is confirmed from daily chart
that this is the time when the trend weakens.
The uptrend rally of $PXP in 2012 happened from 04/2012
to 07/2012.
What’s more interesting is that if a stock is
above RSI70 in weekly chart and stayed above it for some time, automatic, the
daily chart is in AOTS. It’s in uptrend. A trend-following candidate. :)
_______________________________________________________________________________________
Let’s have an example. Case in study: $STI
 |
$STI Weekly Chart.
Highlighted is Oct 2016 to March 2017.
|
Take a look at the weekly
chart of $STI. MA’s are hidden so we can see the behavior of price vs. RSI
alone. The green line is the start of RSI70 breakout and red line is the
breakdown at RSI70. Plotted are the 52wk and 2yr high darvas resistances.
1. This
is the start of the uptrend. End of week of 10/14/2016, $STI broke out from its
52wk high
1a. RSI breakout at 70 level.
2. After
5 weeks, end of week of 11/18/2016, $STI broke out from 2-yr high (multi-yr
high)
2a. Few weeks before that, it consolidated and
RSI70 was retested then rally continued.
3. This
is where the trend ‘weakens’. End of week of 03/24/2017, RSI breakdown at 70
level.
Let’s shift at the daily chart
of $STI.
 |
$STI Daily Chart.
Highlighted is Oct 2016 to March 2017.
|
There. From Oct 2016 to March
2017, the stock is already in AOTS. See how the price rallied? It respected the
SMA20 line for 5 times (1a to 1e). There was an instance start of March 2017, the price
visited the SMA50 and went above SMA20 line. This registered a Lower High (LH)
from Feb 2017’s recent high. It failed to recover above SMA20 in March 2017
that’s why April 2017, $STI started consolidating.
But this June & July 2017, a different story happened for $STI. It did
breakout into new highs again. And I missed it.
Going back.
Buying $STI from 0.72 BO point and selling at
1.10 area isn’t bad too. Around +50% gain in less than 6months. :)
(See the %gain
varies from $PXP? Caveat again.)
_______________________________________________________________________________________
Let’s take a look at another stock. $MRP this year. I
traded this one but wasn’t able to ride the whole uptrend.
The stock code was still $MCP
back then.
 |
$MRP Weekly Chart.
Highlighted is March 2017. The start of uptrend.
|
From the start of 2017, we can see that another kicker for $MRP was PUA. ZS in weekly. The SMA100 went under the price in weekly chart, which signals the beginning of a major trend shift. See ZF's PUA blog entry here
1. Plotted previous’ 52wk high at 4.93 – Jan 27, 2017 High.
2. End of week of 02/17/2017, $MRP broke out of previous’ 52wk high.
But this is not the start of the trend yet. RSI is still below 70 level.
3. End of week of 03/10/2017, $MRP broke its RSI70 level (3a). This confirmed the start of uptrend.
4. End of week of 05/19/2017, 10weeks after #3, $MRP broke out from 2yr high. Price reached 8.20 area.
And guess what? This is +100% gain from the start of $MRP in Jan 2017. $MRP was at 4.00 level that time.
5. As of writing, July 1st week of 2017, $MRP is still respecting RSI70 levels in weekly.
a. $MRP might show further weakness when weekly RSI went below 70. If not, then it's a different story. Caveat.
Let’s take a look at the daily chart.
 |
$MRP Daily Chart
Jan 4, 2017 to July 7, 2017.
Highlighted is
March 10, 2017. The start of uptrend.
|
Switching $MRP to daily chart
we can see the beautiful rally. It’s automatic, daily chart is in AOTS.
1. Jan
27, 2017 $MRP registered its new 52wk high at 4.93. The stock is not yet in
AOTS during that time.
2. Feb 16, 2017 $MRP broke out of its 52wk high.
This is the day I entered $MRP.
 |
$MCP
buying transaction
|
3. Few
days after breaking its 52wk high, $MRP consolidated and re-tested the previous
resistance. This was Feb 23 to March 2, 2017. It managed to stay above it and
as we can see, our SMA20 trend support was confluence with the price pullback.
So the price rallied up afterwards.
a. April 18, 2017 - $MRP just broke down from the
SMA20 in the daily chart.
Respecting the SMA20 rule, I sold all my positions on this day.
 |
| $MCP selling transaction |
 |
| $MCP Trend Following Trade. 2-month hold. +26% gain. |
b. Little
did I know, $MRP rallied further after respecting the SMA20 in daily. The price
went above it and continued its rally touching the 2yr high at 8.22 on May 8,
2017. SMA20 was respected again on May 18, 2017.
4. May
19, 2017 - $MRP finally broke-out of its 2yr high at 8.22. Price rallied
further and June 2, 2017 it registered a new high at 10.20 area.
a. I swing-traded $MRP
in May during this rally because the momentum is really strong that time.
 |
| $MCP
Swing Trade. 5 trading days hold. +12% gain. |
5. June
23, 2017 - $MRP failed to recover at SMA20. Will this signal that the trend is
over? Only the market can tell.
Let’s see how $MRP will react to RSI70 in weekly chart.
So there’s the trend following of $MRP. Just imagine the
rally from start of 2017. From 4.00 area to 10.00 area in just 6months.
Buying $MRP from 4.93 BO point and selling at 9.00 to 10.00 area isn’t bad!
Around +80% to +100% gain in less than 6months. :)
(See the %gain varies from $PXP and $STI? Caveat again.)
_______________________________________________________________________________________
Now let's move on to my favorite part. Trade dissection of
Kap Kidlat's TF Trade: $POPI.
This was wayback 2015 from his #Throwback
FB album.
_______________________________________________________________________________________
This was the actual caption from Kap Kidlat's post:
Strictly Trend Following #POPI
Start of Log.
May 5
A convo between ZF and Kidlat transpired --
ZF: In stocks like POPI, you buy on breakout and TF or do you sell on TPs? Or do you do both?
Kidlat: Sell on TPs lang ako sa popi kasi buy on breakouts. Di ko kaya antayin ung conso if meron man. [**this is so me being a momentum trader**]
ZF: Ahhh.. Was wondering kasi the last I know na TF mo was $X.
Kidlat: Very strict kasi ako dun sa "i hate consolidation" na statement ko. Walk the talk tlga yan. And ung $X hindi ko iti-TF yan if hindi mabilis ung stock. Pansinin mo ung $X during nung time na nag TF ako walang mahabang conso. [**the entire tribe knows that I really hate consolidations**]
Jun 16
Entered $POPI when I saw a good opportunity. Plan was to follow the trend (TF) by STRICTLY trailing the 1 month moving average (i.e 20-MA).
Aug 18
Two months later, liquidated my position when price broke down from 20-MA. [**check comment section for the chart**].
Realization: TF is really not for me. My balls are built for momentum trading. Maybe I could blab about this $POPI trade when I launch my blog. So that i can show you the entire log. Mahirap mag-monologue sa FB ng mahaba. Not sure when tho. Coz im tamad AF.
But let me tell you this now, trend following looks like a very simple setup in hindsight. Until you trade it.
End of log.
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Okay, let’s start. Let’s try to dissect the trade based from what we’ve discussed above.
$POPI TF Trade
Setup : Breakout Play / TF Play
Conviction : Multi-yr
high BO | AOTS daily & weekly | Trend following
Trade
Objective : Trend-follow
 |
Kap Kidlat's $POPI trade.
June 16 to Aug 18, 2015. 2months hold. +45.07% gain. |
 |
$POPI
Weekly Chart. Nov 2014 to Sept 2015.
|
Let’s
start with our weekly analysis, where we can see the start & end of trend
in just one look.
Can you see it? In just one look and then yun iba na? (…malagkit dumikit ang tingin ng
mata. One smile, iba na ang ibig sabihin… :D)
1.
End
of week of 06/11/2015, $POPI broke out of RSI70 weekly (1a).
This is the start of
the uptrend. Kap Kidlat entered 06/16/2015.
2.
End
of week of 08/20/2015, $POPI broke down of RSI70 weekly (2a).
This is where the
trend weakens. Kap Kidlat liquidated his position 08/18/2015.
Another
conviction for this trade is that in weekly, $POPI is in AOTS. Uptrend it is.
_______________________________________________________________________________________
 |
$POPI
Daily Chart. April 2015 to Aug 2015.
|
Let’s
shift into daily chart. There, we have AOTS in daily from June 2015 to Aug
2015.
Let’s go further in detail
where Kap Kidlat exactly made his transactions.
_______________________________________________________________________________________
 |
$POPI
Daily Chart. June
16, 2015.
|
Buying Area
Let’s
simulate what happened on June 16, 2015.
1.
Plotted
Multi-yr high resistance at 1.28. This is the high since 1998, an area of least
resistance. A breakout from this area will be explosive.
2.
$POPI
registered a higher low (HL) around 0.90 area. This was confluence with SMA50
and golden fibo ratio.
3.
On
June 8, 2015, price broke out and stayed above SMA20. From our observation discussed above, SMA20 is the trail support for trend following plays. After breaking SMA20 in daily, stock shifted to AOTS again.
4.
On
June 11, 2015, price broke out of the Multi-yr high of 1.28. This is
accompanied by volume spike (4a) which is above average traded volume. RSI also broke
out of 70 level in daily chart (4b).
5. On
June 16, 2015, $POPI opened at 1.28 and never went below it. It closed at 1.35
area and Kap’s AEP was 1.3540.
_______________________________________________________________________________________
 |
$POPI
Daily Chart. Aug 18, 2015.
|
Selling Area
Let’s
simulate what happened on Aug 18, 2015.
1.
After
the breakout from June 2015, $POPI rallied further. As a trend-following play, it
clearly respected our SMA20 trail of support (1a & 1b). There was one time
on Aug 11, 2015 where the price broke out (1b) with a decent volume-spike (1c).
2.
But
after 2 days, on Aug 14, 2015, the price attempted to break from 2.50 area but
failed. The selling pressure was strong (2a) and $POPI closed at 2.26.
3.
RSI
bearish divergence manifested during #2’s attempt for another breakout. While
the price attempted to make higher highs (HH), RSI registered lower highs (LH).
This is clear that the trend is losing its momentum.
4.
Aug
18, 2015, price broke down from SMA20. It is also clear with the RSI since it
went below RSI50 level. Entering bearish area. This was the day Kap sold his
positions.
_______________________________________________________________________________________
 |
$POPI
Daily Chart. April 2015 to Aug 2015.
Using
SMA20 only
|
Let’s
look at $POPI in a simple approach. Plotting the Multi-yr high and just the
SMA20.
We can have 2 options for buying.
Buy 1 – When price went above SMA20
Buy 2 – When price broke out of the
Multi-yr high
Selling
area is the same, after SMA20 snaps out. Both buying options can still be profitable.
_______________________________________________________________________________________
To put everything in summary:
Previous Trend Following Criteria
|
Revised Trend Following Criteria
|
1. The stock must have broken-out of
at least the 6 month resistance
All-time
high >
Multi-yr high >
52-week high >
6month high, and so on
2. AOTS formation in daily
§ More
conviction if AOTS formed in weekly (longer timeframe)
3. SMA20 trail is being respected in
the daily
§ Last
resort, SMA50 is respected
4. Sell whenever SMA20 ‘snaps’
§ Or
when SMA50 snaps
|
1. The stock must have broken-out of
at least the 6 month resistance
All-time
high >
Multi-yr high >
52-week high >
6month high, and so on
2. RSI stayed above 70 in weekly
§ Start
of trend - RSI70 BO in weekly
§ End
of trend - RSI70 snaps in weekly
3. AOTS formation in daily
§ More
conviction if AOTS formed in weekly (longer timeframe)
4. SMA20 trail is being respected in
the daily
§ Sell
whenever SMA20 ‘snaps’
§ Last
resort is the SMA50
|
- End of entry -
