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Support: More art than science

I have sat with many a client over the years, mostly discussing charts. I try and boost their confidence in reading share price activity for trading signals. Are the shares going higher, or are they headed lower?

What they always want to know is how to draw trend-lines. Because everyone wants to profit from the next bounce and rally. If I have learnt one thing over the last decade, however, it’s that drawing these lines is more art than science.

Identifying the predominant trend (rising, falling, sideways) is more important than a perfect line below the lows (or across the highs). In fact, the more you seek the perfect line, more you will miss valuable trading opportunities. Perfection is too much to ask of the financial markets. It would be too easy otherwise.

One of my recent blogs mentioned “fear of missing out”, which often causes traders to make rash decisions. A little patience can really boost your success rate. Similarly, however, seeking perfect trendlines can result in “risk of missing out“.

You can’t always have nice horizontal trendlines below the price lows on your chart. There might be the odd candlestick that goes a bit lower. But if you can draw a line below several lows, including the latest, that’s good enough for me.

WPP

Chart 1: WPP

After all, share prices move about. Sometimes orderly; sometimes not. One day identifying trendlines is easy, the next you might require more imagination. After all, if it was that easy, there would be no money to be made.

I have picked three charts as examples of Support, putting my money where my mouth is, using trade observations sent to clients today or yesterday (charts as sent). Hindsight is great, but the only way to really learn is by identifying in real-time and watching what happens. After all, trading requires you to be honest with yourself and, as with everything, practise makes perfect.

Chart 2: NMC Health

Chart 2: NMC Health

First up is WPP. After the shares found support at 797p, this provided the ideal third touch for a horizontal trendline to be drawn back to 10 December. Better still, it produced a horizontal range. The trendline doesn’t quite touch the 10 December low, but the sideways range is clear. so, back to the ceiling?

Next up is NMC Health, in a falling range. This pattern often puts traders off. But even in a downtrend, shares rise and fall. After the recent sharp sell-off, the range floor has potential to attract buyers and engineer a bounce. Could the shares rally back to the highs? They might not get all the way back to the ceiling, but after a 20% sell-off the upside potential is compelling even if they only get back to 2700p.

Land Securities

Chart 3: Land Securities

Lastly, I give you Land Securities. After peaking at 930p the shares fell back and found support at 900p. This allowed a new rising trendline to be drawn from the lows of 25 Jan. It also confirmed a rising range. Yes the lows of 14 March didn’t quite touch the trendline, but this doesn’t harm the general uptrend from late January.

Come Monday, all three charts may be higher. But hey could also break lower if there is a major market event or disappointing announcements from the companies. That’s the way the cookie crumbles. It doesn’t mean we did anything wrong in terms of identifying support. Support doesn’t mean shares can’t fall through the level. It merely means that the probability of a bounce is in your favour.

Every day Accendo’s Research team highlights to clients a selection of trade opportunities, of which two Support and two Ranges.The three above were all highlighted to clients in the past two days.  let’s see how they do next week. To make sure you receive all future ideas, get access to our Research Gold Pass. 

Let us do the hard work finding the best charts and trendlines. Let us Support you.

Mike van DulkenHead of Research, 28 March 2019

 

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research

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