Appendix A: BAsic investment decision mAking BAsed on chArt AnAlysis
A.4.3 participatory Options for the Short‐
and Medium‐Term Bullish Trader
For the more risk averse short‐ to medium‐term trader who wants to initiate a new
position in the stock, we would recommend buying into the stock at the current
support level at around $500 with a stop loss placed at $490. Scaling into more
positions may be possible should price rebound back above the lower Bollinger
Band as in Figure A.3. Again, the client is advised to remain cautious in adding new
positions and should only seriously consider doing so once price proves that it is
able to break back up above the long‐term trendline as seen in Figure A.4. Until
then, that trendline represents a formidable resistance to price. Any profitable long
positions should employ protective stops, trailing gradually closer to current price
as the market approaches the resistance level. We may also calculate some basic
downside price projections based on the Point and Figure vertical and horizontal
counts seen in Figure A.5, providing important levels for potentially adding, reduc-
ing, or exiting positions. In addition, Fibonacci ratio projection based on the peaks
and troughs, as well as the chart pattern projection based on the triangle formation
found in Figure A.1, may help identify significant supportive confluences. At these
supportive confluences, a trader who is risk adverse in the price on entry may elect
to buy fewer shares whereas a trader who is risk seeking in the price on entry may
add aggressively to his or her current portfolio. Violation of a supportive confluence
may force risk averse traders to exit or reduce positions.
A.5 AdViCe fOR THe SHORT‐ And MediUM‐TeRM
BeARiSH TRAdeR
A.5.1 The Climate in Which the Stock is Trading
(the index)
We have, as before, already identified and covered the numerous bearish indica-
tions as noted in the previous paragraph in Section 3.1 with regard to the long‐
term chart in Figure A.7. As for the medium‐term chart seen in Figure A.8, we
see that price is rapidly approaching a significant resistance level as indicated at
(2). This has the potential to exert downside pressure on the index. We also see
that the RSI indicator is approaching the overbought level, possibly coinciding
with price testing the resistance at (2). Also observed is the expanding divergence
between price and the 200‐day moving average, increasing the possibility of a
short‐term correction.
All this indicates that the current climate in which the stock is trading is still
potentially bearish.
A.5.2 evidence for Maintaining That the Stock is
Bearish over the Short and Medium Term
We have already identified and covered the numerous bearish indications as
noted in the previous paragraph in Section 3.1 with regard to the long‐term and
medium‐term charts as seen in Figures A.1, A.4, and A.5.
