r I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I DISCOUNT COUPON - TRADING WORKSHOPS 10% off the regular seminar fee - single and group rates (These workshops are held in Australia Asia, China, the USA, the UK and Europe.) Trading looks easy, but it takes skill How best to approach your market and survive is a skill that can be learned, and improved Trading success means knowing how to GET IN by identifying a trade It means knowing how to manage the trade so you GET OUT with an overall profit You can become a better trader by attending a half-day or full-day workshop because Daryl Guppy will teach you how to understand the marker from a private trader's perspective, how to use your advantages, and how to manage a trade to Jock in capital profits All traders - those considering entering the market and those who want to improve their trading - benefit from these workshops Nobody can give you the ultimate trading secret, but Daryl Guppy will show you, using local examples selected by the audience on the day, how a private trader identifies and manages a trade You will enter the market better informed than your competitors Daryl Guppy holds regular trading workshops, Dates and details are posted on www,guppytraders,com eight weeks before each workshop, How to claim your workshop discount When YOll hook your seminar mention that YOll own TrendTl'Luiinf.[ and ger (n{~ off the advertised fee, Bring this book with you to confirm YOllr discount if «111 be JUfographed for YOll if you wish Some comments from workshop participants "The workshop, like your book, was practical and informative I enjoyed it, and more importantly, I learned from it For me it brought a lot of the theory into perspective." - Private equity trader "The workshop covered all the essential building blocks of the trade hetter and more effectively than any book that I have come across " - Hong Kong equity analyst "In my seven years attending continuing education programs J have never found a session as useful and interesting as the one which you have conducted •' - Remisier, Singapore "On the subject of the seminar, J must say that it was an inspiring night Daryl was energetic, spontaneous and his comments were thought provoking Additionally, he was very generous with his time, staying back after the official closing time to discuss specific issues with us I've not been to a trading seminar before where the examples used during the evening were drawn from the audiel1Ct! (not pre*plal111ed) " - Private equity and derivatives trader ' TREND TRADING Daryl Guppy Ctj 8888 109049407 bJrlghtboolss Share DARYL GUPPY is also the author {)f: Trading Tactics \ Trading Asian Shares Bear Trading* Chart Trading", Better Trading"", Snapshot Trading" Trading~, and the Australian editor/contributor to: fhe Basics O(Speculating* by Gerald Krefetz, The Day Trader's AdvantagtJ* by Howard Abell, Options· Trading Strategies That Work"" by William F Eng "'Published by and available from Wrightbooks irst published 2004 by Wrightbooks n imprint of John Wiley & Sons Australia, Ltd ;3 Park Road, Milton, Qld 4064 )ffices also in Sydney and Melbourne [ypeset in 11.5/14.2 pt Sa bon © Daryl Guppy 2004 internet; 100035 406@compuscrve.com www.guppytraders.com Charts crented by MewStock, Guppy Trader" Essentials and Ezy Charts, uSing data supplied by Just Data National Library of Australia Cataloguing-in-Publication uatD.: Guppy, Daryl Trend trading Includes index ISBN 7314 0085 Stocks - Australia Investments - Australia L Titie 332.63220994 AU rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of the publisher Cover design by Rob Cowpe Printed in Australia by McPherson's Printing Group 10987654321 Disclaimer The material in this publication is of the nature of general comment only, and neither purports nor intends to be advice Readers should not act on the basis of any matter in this publication without considering (and if appropriate taking) professional advice with due regard to their own particular circumstances The decision to trade and the method of trading are for the reader alone The author and publisher expressly disclaim all and any liability to any person, whether a purchaser of this publication or not, in respect of anything and of the consequences of anything done or omitted to be done by any such person in reliance, whether in whole or partial, upon the whole r _ l,l;,- ,t;nn • CONTENTS 7::)8 it, Preface: A flea on an elephant Part I Gone fishing How I start making money? 17 Fish finding 36 A hitchhiker's guide to the sharemarket 48 No secrets 56 Part II Hey good looking Heads up 67 Overcom ing bias 79 No secrets 93 Part III Line of lode 10 11 Classic trend lines 101 Line managers 11 Curve balls 119 No secrets 127 Part IV Testing character 12 13 14 15 16 17 18 19 20 Building character 137 Tracking traders and investors 155 Trend travellers 163 Using price weakness 175 Rally breaks 184 Breakout trading 194 Better exits 204 Bubble baths 212 No secrets 225 (Cont'd ) III TReND TRADING CONTENTS (CONT'O) Part V Price check 21 22 23 24 25 Breakout confirmation 235 Entry management 245 Keeping the most 253 IPQ profits 268 No secrets 275 1' ( Part VI Calculating size 26 27 28 29 Three figures 285 Stop 293 A danger to ourselves 306 No secrets 317 Part VII Modern Darvas 30 31 32 33 34 35 36 Boxing the trend 329 Building a box 341 Classic Darvas 352 Modern Darvas 362 Playing with the edge 376 Technical Darvas 382 No secrets 388 Part VIII Performance plus 37 38 39 40 Personality blues 399 Lucky you 407 Nosecrets 417 Found in translation 426 Index 429 IV • PREFACE T rend trading is not about timing the market It is about doing at least as well as the general market, and outperforming it The task is not as difficult as the fund managers would have us believe This book examines some of the tools investors and traders use to ride the rising ride, and lift abo~e it You have advantages as a small investor and we show you how to use them effectively Between March and September 2003 over 400 stocks listed on the Australian Stock Exchange increased in value by more than 30%, but only a few traders and investors were able to find and lock-in these trend-driven returns Some caught a ride with a big opportunity, but lost it, turning a winning trade into a much smaller profit, or even in some cases into a loss We examine some easyto-apply trend trading methods to find these opportunities and to capture these types of profits You can this, and this book shows you how Many people invest in the market with the assistance of professional fund managers You see the managers' advertisements in the newspapers proclaiming their expertise They tell readers it is not possible to time the market It is possible to participate in a rising trend Ask a simple question of your fund manager or superannuation provider: did they match the broad market return in any year? Often the answer is a resounding and disappointing 'No' Think for a moment about this answer It means their team was unable to float with the rising tide, let alone add extra value through professional management TREND TRADINc; I have given up t\¥ing to understand why people behave as they in the market Intelligent, J1b!, experienced, skilled people make serious errors Losing money does not seem to be a deterrent and it does not modify their behaviour Such reactions are beyond my understanding I not waste even my spare time in trying to understand why people these things in the market I do, however, spend a lot of time trying to understand how people behave in the market Shift to this focus and an entirely new range of relationships emerges The study of the market becomes a study of human nature and crowd behaviour The activity is tracked effectively in the patterns of buying and selling, in the structure of the price charts They tell me little about the company, but speak volumes about the crowd of buyers and sellers Tighten the focus a little more, and we discern a set of statistical or probability relationships Some are as simple as the propensity of a stoc~ to continue rising after it has been mentioned in Sharll