by ckchoy
It has been a while, since my previous personal market view update. Let's recap.
It has been a while, since my previous personal market view update. Let's recap.
Refer to chart 1(daily chart from Dec till now), HSI immediate bottom was formed around 17874 on 15 Dec 2011, very close to my spotted capitulation bottom around 17886 on 12 Dec 2011 ( refer to my call on HSI capitulation at 2011/12/15 10.39am ? ). True enough, HSI started to rebound strongly and on 8 Feb 2012, I spotted an euphoria sentiment where the chart showed market might have hit the immediate high around 21000 and hence I called for an immediate market top. ( refer to my call HSI inverse-capitulation at 2012/02/08 2.11pm ? ). But the actual top was formed around HSI 21800 on 20 Feb 2012, about 800 points above my call. From there, market was trapped in a big range-bound. One discouraging sign is market volume remains sluggish.
chart 1
chart 1
How do I spot capitulation bottom and inverse-capitulation top?
A slowly moving downtrend with low volume and couple with a sharp sell-down with high volume - very high chance this may mark a capitulation bottom has happened and market will start to reverse up.
Similarly, A slowly moving uptrend with low volume and couple with a sharp surge with high volume - very high chance this may mark a inverse-capitulation top, and market will start to reverse down.
The period for this pattern formed may be in weeks or months.
In summary, 3 key points
1) slow trending
2) low volume
3) couple with sharp following trend with high vol
What is the advantage of using this capitulation?
What is the advantage of using this capitulation?
I'm a short term trader and have been trading market intraday. Short term trades tend to move fast. The decision making on buy/sell calls will be flipping very quick. I do not expect retail investors can follow the fast pace of short term trades. Hence I usually try to post where retail investors can have bigger reward/risk probability entry points, and capitulation bottom/top do offer a great opportunity to retail investors who may wish to bet on a higher probability handsome profit.
So what's next from here and what should we do?
So what's next from here and what should we do?
If the immediate top formed where HSI hit 21800 is true, then market might have reversed down since 20 Feb 2012 and was since moving in downtrend. So, where it will stop?
Refer to intraday chart 2, where HSI today gapped down sharply and continued trend down. In between there looked like some small capitulation bottoms might have happened. But in bigger picture (refer to chart 1), a better reward/risk ratio may need to see whether HSI can hit below 20000, and couple with a sharp sell-down later.
My personal advice
1) For those have invested heavily, try to spare out 50% cash to reserve for a possible capitulation bottom happens before enter again.
2) For those have not invested and higher risk taker, can use 50% cash to start buying slowly now, reserve another 50% for a possible capitulation bottom.
3) For those have cash and not hurry, can wait for a capitulation bottom happens before showing your hands.
chart 2
What if?
There is no 'sure' case in market, even though you follow high probability calls, you may still need to prepare for the opposite side that may be against you. But betting on a higher probability winning chance consistently over long run will ensure you making profit in long run. For example, casino house is always win against gamblers because the betting odds are always in favour of house. In long run, casino house will be a winner and a gambler will be a loser. So don't despair if you encounter any setback in market. As long as you always bet on higher winning odds and don't let 1 bad trade wipe out your capital, success will be with you. Hence I would like to reiterate that 'cut loss' rule is very important, even though it is an 'easier said than done' case.
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