It is easy to make profit in the uptrend, especially if there is a super bull up trend like 2020. Any analysis can give you good returns. However, when the trend is about to peak, this is when many of us will start to get trapped in the market while using the same analysis. While the same analysis doesn’t provide us enough insight of the trend reversal, most of us will get trapped in the common trading strategy such as resistance breakout, entry on pull back, & other indicator signals. 

By the time the technical signal triggers a trend reversal, the losses in our portfolio make it too difficult for us to sell our losing stocks. End up most of us are trapped in the downtrend & it gets worse when we try to average down with our own perception that the stock prices are at the low. Then the price broke the support & went down further, & we average down again at the next support level. Never ending rolling our losses like a snow ball. 

We can summarize the reason we make losses in the stock market with 4 Don’t Know : 

We don’t know When is the trend reverse in time [ Too late to know ]

We don’t know Where is the bottom [ Setting our own “fair price” ]

We don’t know How to identify the next price movement [ Make decision with our Greed & Fear ]

We don’t know What strategy to use other than an uptrend strategy [ Most TA strategies are for uptrend ]

We don’t know Who is telling the truth. [ Too many noise, some are good now & bad later ]

The culprit of inconsistent trade

If you find your trading result is inconsistent, it could be the strategy you apply for your trade are for trending only. When the trend starts to move sideways or reverse, the stock prices are not able to hit your profit target & hit your cut loss. 

We might lose more than the profit made when we are trading at the peak with trend oriented strategy. Especially if you get washed out from a “cut loss trap” in the uptrend before. You will then lower your cut loss point (exposing higher potential losses) or enter a stock when there’s a pull back. 

When the price starts to retrace before your profit target derives from the chart pattern, you have no idea whether it is just a small retrace or trend reversal. Some say take profit a few ticks below the profit target, but how to decide how many ticks lower?

Usually retail investors feel confident in their trade after making a few rounds of profits in the uptrending market. They will convince themselves the price retrace is just a short term, it will rebound & hit the profit target. But the price never hit our profit target after the 1st rebound, now we have to decide whether to take the profit. 

But looking at the profits that you missed out previously, you hesitate to click the “Sell Button”. So you park your sell orders slightly higher than last traded price & hope to sell with slightly more profits. Then when the price goes lower, you adjust your sell price lower, chasing after the price down until all your unrealised profits are gone & your position turned into losses. Now you start to give yourself a reason to hold this stock, because financially they are good, they give dividends, good outlook for the industry, & reasons that make you feel comfortable. If you are lucky, the stocks you bought might move higher in the long run. But if the stock you bought are those mid term stocks operated by the big boys, you will get trapped in there for years. 

Will you still hold the stock if you know that is going into a trend reversal? You will quickly sell the shares & take the profit at the high side right! Is the current analysis able to give you the signal of a trend reversal before the 1st retrace? Looking at the traditional analysis, none of it is able to tell us before the 1st retrace. Usually the trend reversal signal comes out after the stock price is down. Because traditional analysis uses mean/ average price of no. of days, this is like looking at the tiger charging towards us. Mr. A is processing the average survival rate that we can outrun the tiger, while Mr. B starts running away to save himself. 

Another example is to look for a resistance turn support as an exit point. The resistance is created by the big boys who are selling heavily to distribute their shares & you are taking that as a “lifeboat”. 

When you start to find the traditional analysis doesn’t make sense, you know that it is time to change the way we look into the stock market. It is no longer the era where the market participants including us have the influence in the price anymore, it is who have more control of the shares that control the stock prices. It sounds unfair, but we should be happy about it, because this also means the stock prices are much more predictable. You don’t have to know the behaviour of millions of people to know the direction of the stock, you just need to know the 1 that has the biggest influence in price. 

By knowing their operation stages, you know when to exit before any retrace, when the stock is going to rebound, lastly you can trade in any market trend. Because you will know how to react to the trend changing & apply the right trading method on it. You will then truly understand the meaning of,

 “Fearful when others are greedy, and greedy when others are fearful.” - Warren Buffet

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Malaysia stock market is a unique market; hence it requires a customized trading approach to tackle & swerve. Many existing traders in Malaysia apply a plug-and-play strategy from the overseas stock market, but it is not necessarily the best strategy to trade in KLSE. This is due to the difference in local and overseas stock market regulation and the size of market participants of institutional funds & retail investors.

“True traders react to the market.” is the backbone of our trading method. Our findings and strategies are developed through years of trading experience and observance of the operating style in Malaysia’s stock market.

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This blog is for sharing our point of view about the market movement and stocks only. The opinions and information herein are based on available data believed to be reliable and shall not be construed as an offer, invitation or solicitation to buy or sell any securities. Round & Surge and/or its associated persons do not warrant, represent, and/or guarantee the accuracy of any opinions and information herein in any manner whatsoever. No reliance upon any parts thereof by anyone shall give rise to any claim whatsoever against Round & Surge. It is not advice or recommendation to buy or sell any financial instrument. Viewers and readers are responsible for your own trading decision. The author of this blog is not liable for any losses incurred from any investment or trading.