Do we have a "Topping Triplet" ? NO !Technical analysis, dating back to the 17th century, has evolved from rudimentary charting methods used by Dutch traders and Japanese candlestick charting to modern techniques rooted in Dow Theory and amplified by computational models. [1]
It is the study of past price movements with the aim of getting guidance to potential future price movements. Charts are the primary tool of technical analysis and it could take the emotional element out of decision making. As the price action gyrates and seemingly no visible trend, plotting studies and indicators wisely would yield reliable Buy/Sell signals from experience. Here I would like to share one of my winning formulas - the Topping and Bottoming Triplets.
On any chart at any given timeframe, if we plot a Stochastic indicator, a simple Buy/Sell signal is as follows:
- In the oversold region (generally < 20%), when the 2 Stochastic lines crossing upwards (blue dot) => BUY
- In the overbought region (generally > 80%), when the 2 Stochastic lines crossing downwards (red dot) => SELL
This strategy works for some stocks and for some of the times but not always. That's not good enough. In you Google search, you would find millions of strategies all claiming fantastic success. So we need to do "back testing" with whatever strategies that you are interested in. However, a word of caution is one strategy might work for one stock but not the others!
The Stochastic Topping and Bottoming Triplet StrategyAfter many years I have developed a much more reliable strategy which is to ONLY consider the Triplets as follows:
- In the oversold region (generally < 20-30%), when you have a Consecutive Buy / Sell / Buysignal, this is a "Bottoming Triplet" = very STRONG BUY
- In the overbought region (generally > 70-80%), when you have a Consecutive Sell / Buy / Sellsignal, this is a "Topping Triplet" = very STRONG SELL
Applying this strategy on PYC's weekly chart as shown below, you would see how reliably the tops and bottoms are being predicted.
Back-Testing with PYC's Weekly ChartLet's do some back testing. If we start with $500 and bought in 12/2019, saw the stellar rise and bought another $500 in 08/2020.based on the Bottoming Triplets STRONG BUY signal. Then
continue to use the same strategy reinvesting the initial $1,000 and profits, the unrealised profit would be $5,099 at last Friday's close of 8.6c. You would be very happy with a 500% profit!
Look at the Stochastic plot again for the last few weeks, can you see a Topping Triplet? NO. Therefore
I am quite comfortable that the SP has not topped out yet. Besides, 8.3c is the 50% Fibonacci Level and it is a favourite "mean reversion" point. Therefore we would hope this level would provide some support. A bit of good news would push it back into the 10c region.
Reference
[1] https://www.composer.trade/learn/a-short-history-of-technical-analysisIf you find this posting useful, please hit the "Good Analysis" button
