Appendix A: BAsic investment decision mAking BAsed on chArt AnAlysis
A.2.3 participatory Options for the Long‐Term investor
As a recap, here are the seven participatory options available to any market par-
ticipant, namely:
- To enter (i.e., to initiate) a new position
- To add to (i.e., to scale into) a position
- To reduce the size of (i.e., to scale out of) a position
- To exit (i.e., to fully scale out of) a position
- To re‐enter a position in the same or opposite direction
- To fully or partially hedge a position (i.e., to neutralize or diminish directional
risk)
- To remain in “cash” (i.e., to refrain from holding any positions)
For the more risk averse long‐term investor who wants to initiate a new posi-
tion in the stock, we would recommend buying into the stock at the current sup-
port level with a stop loss placed just below it at around $480. Once the stock
proves that it can penetrate the medium‐term downtrend line (2) as seen in Figure
A.1, we recommend scaling in very small amounts with a stop placed just below
the trend line. Should price pull back to the trendline (2), further scaling in of
additional positions may be made, unless it falls back below the trendline. Also,
some scaling in of additional positions is recommended should price break back
above the long term trendline, as seen in Figure A.4. We also advise the client to
roll up the stops for the position entered at the lower support. Finally, should the
stock collapse below the current support, we advise the client to cut all losses by
exiting at the stop that was placed below the support.
For the more risk seeking long term investor, we recommend buying into the
support at the current price, with a stop loss placed at around $380. Further
scaling in may be made as price climbs, but it is best to buy on profit. Should the
share price breach the current support level, additional positions may be scaled
into at around the next significant support level at around $420, as seen at (2)
in Figure A.4.
A.3 AdViCe fOR THe LOnG‐TeRM inVeSTOR
(BeARiSH OUTLOOk)
A.3.1 The Climate in Which the Stock is Trading
(the index)
Referring to the long‐term chart in Figure A.7, we see that the Dow Jones is cur-
rently trading within a medium‐term rising wedge formation, contained by trend-
lines 1 and 3, as well as within a much larger, longer‐term rising wedge formation,
between lines 1 and 2. Both these wedge formations are bearish for the index. We
also see that the index is approaching its previous high around the 14,000 level.
This again may exert downside pressure on the index, as it tests the long‐term
resistance, suggesting further bearish implications.
