dimpledbrain

The conceptual framework for a man's search for meaning

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Support and Resistance

August 14th, 2019 by dimpledbrain
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The first step to successful chart reading involves identifying (and drawing) [perfectly] horizontal lines on the chart called support or resistance.

It goes like this:

  1. Imagine a stock price dropping from a high
  2. Once it is ‘low’ enough, it starts to move sideway
  3. A stock price dropping means sellers are overwhelming buyers. There are more sellers than buyers (and hence the price drops)
  4. Once it reaches an attractive base, buyers start to emerge.
  5. At this point in time, buyers absorb any remaining units sold by sellers
  6. Hence price will stabilize as early bargain hunters absorb any remaining units
  7. Price starts to move higher after some time (due to fewer units in the market) and this will attract even more buyers
  8. This gets into a loop – stronger price attracts more buyers until it reaches the top.
  9. Return to #1 and the process repeats
  10. A breached support line will turn into a resistance line and vice versa. (if buyer emerges to buy at RM2, and forms a support line, and only later to be overwhelmed by sellers flooding the market , price will drop from this point. Subsequently, this breached RM2 line is where a lot of weak hands who had previously bought at RM2 now turned to become sellers (and hence it becomes a resistance line)
  11. This is partly psychological – weak hands who say bought at RM2 will hold on to their dear life when stock slides down to say RM1. Once it gets back to RM2, they will quickly sell the stock (risk aversion) to break even from the stock and breathe a sigh of relief.
  12. I have drawn 5 horizontal line below on a real chart below. Think of them as either support or resistance. Observe how once the support line is breached, it becomes a resistance line.

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Pbbank

August 14th, 2019 by dimpledbrain
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  1. Public Bank is approaching RM20, a long time support line since 2014
  2. This represents a good buying opportunity for people looking at long term
  3. Even at current price, it has the potential to bounce back to RM22 (lower of the downward channel). At a minimum, it should rally back to RM21 area (mid of downward channel)
  4. For blue chip counters, the best strategy is always to buy at weakness (while biting the bullet)

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Getting more and crucial conversation

August 3rd, 2019 by dimpledbrain
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So the other day someone asked me a question – why are they pissed off when their expectation is not met

This kind of situation occurs daily – I have seen a fair share of these situations.

So I explained that there are a couple of pointers we have to always keep in mind:

  1. End goal – what are we trying to achieve here. This is very important. If your goal is just to get satisfaction from blasting the other person, humiliating the other person without getting anywhere, this response is ok
  2. But it turns out that this young corporate superstar needs to get some work done through her peer.
  3. So I ask her to focus only on the end goal and to coordinate all her other actions, thoughts and behaviours to achieve this goal
  4. If the need to explain 20 times is necessary to achieve this piece of work which is important to you, wouldn’t you just do it without hesitation?
  5. Sadly, most people drift aimlessly in this world. This happens because the end goal isn’t clear. Conflict happens because of this. Paradoxically, it is so much easier to live without clear goals than otherwise.
  6. If your action doesn’t support your end goal, then you are only jeopardising yourselves.
  7. The picture in the other person’s head – to complete this discussion, always remember to start any discussion from the mental picture in the other person’s head, not yours.
  8. Phrases like “why is this person so lazy, dumb”, “why is this person not respecting me” etc point to the mental picture in your head, not the other person’s.
  9. In summary you need to think hard of the end goal you want to achieve. Then start from the mental picture of the other person and then deploy any means to inch that picture towards your end goal.

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Investment linked insurance and insurance savings plan

August 2nd, 2019 by dimpledbrain
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I think many people get confused over this topic so let me pen this down:

  1. Any plan with the word insurance inscribed to it like investment linked insurance or insurance savings plan means just that – it is an insurance plan, i.e. a protection plan that covers you for any untoward incidents.
  2. When you buy an insurance plan, e.g. a medic card insurance, it will cover you from the moment you purchased it
  3. It will not insure you when you are 80 years old.
  4. Put differently, if you buy insurance in 2019 and nothing happens to you in 2019, that portion of premium you paid for 2019 is lost forever (the insurance company will take this as their profit)
  5. If you have been buying insurance for 20 years and nothing happens to you in these 20 years from the moment you first purchased, then the insurance company profits from the premiums you paid.

Standalone medical card insurance vs investment linked medical insurance

  1. Standalone medical insurance means the insurance company is collecting premium for the year/month insured. Nothing more and nothing less
  2. Say for instance for now, an RM300 Room and board + RM300K annual limit for hospitalization, the insurance premium that one has to pay is as follows:
  1. A 36 years old will have to pay RM107/month vs a 66 years old who will need to pay RM493/month for the same coverage as #3 above
  2. If both made the payment for 2019 and nothing happened to them, then the insurance company will profit ALL from the premiums paid
  3. Investment linked insurance simply means that instead of RM107/month or RM493/month, one pays more so that the excess (not the full insurance premium paid) will be invested (usually back into KLCI or fixed deposit – to return about 3-5% per annum, if you are lucky. It can go negative return as well.)
  4. As you are paying through out the years, the insurance premium will be increased. This is due to cost claim ratio, inflation, medical cost etc
  5. Insurance savings plan has the same concept as above and is usually linked to a term insurance. What this means is also the same – one portion will be paid for insurance and the balance will be reinvested, and hence the name insurance savings plan
  6. For example if you pay RM100 into this plan, RM40 will be paid for insurance and RM60 will be reinvested. That RM40, since it is for insurance will be lost forever if nothing happens to you in the year the premium is paid. (in reality the amount for reinvestment will be lower after deducting agent fee etc)

Conclusion

  1. Do not buy insurance products for savings or investments – go for unit trusts, fixed deposit etc for investment
  2. Insurance, when you buy it, covers now. If you buy now, the premium you pay will not cover (it wont be sufficient to cover) when you are 30 years from now
  3. You only insure now, NOT the future
  4. What IF something bad happens to me – this is also another fallacy which we need to tackle in a separate post

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What constitutes an uptrend

July 31st, 2019 by dimpledbrain
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Stock price does not move in a straight line. It moves in waves.

Conceptually as follows:

  1. If stock price moves like the grey line, there isn’t much we can deduce from.
  2. However in reality, price moves in waves like the following. Even in an uptrend, the stock will move up say 10 points, to reverse back 3 points before going back up 7 points etc
  3. For an uptrend to hold, the upmove will be longer than the downmove. (refer to the black line below)
  4. And vice versa for a downtrend.

The principles that we can deduce from:

  1. Buy in an uptrend
  2. Think in waves
  3. It is easier to spot a top than a bottom. (the reason is rather psychological and obvious- people tend to sell faster/ motivated to sell rather than to buy).
  4. On average, there will be more sellers than buyers. (the motivation to sell, i.e. the need to use money is always stronger, all things constant)

This is a line chart of a real stock. Can you eyeball how many waves (up and down) are there?

My answer as above. As you can see, the yellow lines (uplines) are consistently longer than the downlines (highlighted in blue)

So the stock is moving upwards. So at any point of the blue line, it represents a buying opportunity

Simple isnt it

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FBMKLCI

July 31st, 2019 by dimpledbrain
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On 19 July, I projected FBMKLCI using a daily chart. I said it will push downwards, hitting 1640 as the first stop. 2 weeks later now, it hit that point. So an update is due

  1. 1640 is the mid of downward channel.
  2. It will consolidate here for a while before deciding on the next move
  3. For it to reverse the trend, it needs to go up 1670 and form a new base there
  4. Else it will push down towards 1580 (the low of the downward channel)
  5. As at now, #4 is more probable

Attached is a renko chart (semi tick chart*) with a 5 point reversal for FBMKLCI

A true tick data set will not have time element. The above is built from an end of day data

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Tick Chart vs Time Chart

July 26th, 2019 by dimpledbrain
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The normal chart that we see is a time chart. Take for example a daily chart. Regardless of any buy and sell transaction, at the end of the day, there will be a record.

A tick chart on the other hand, only records something on the chart when there is a transaction. If there is no transaction (buy & sell activity), there will not be any record on the chart.

So a tick chart can be viewed as a compressed version of a time chart

Put another way, if there are 10 days of data, you will see 10 price bars on a time chart. On a tick chart, it will depend on how you set it. (for example, only record change if there is RM1 change)

Assume the above data – on a daily chart, you will see 10 data points. On a tick chart that is set to record any change of minimum RM1 (called reversal amount), then on Day 6 and Day 7, there won’t be any record (since the price is similar to Day 5’s). The last data point will be on Day 5 at RM12. The next data point will be on Day 8 at RM10. Ditto for Day 9 & Day 10.

The above tick chart is based on RM1 reversal amount. If you set the reversal amount to be RM2 (meaning, only record any change is there is an RM2 change), you wont see Day 2 data for example. Day 1 is RM10, Day 2 at RM11 only has RM1 change.

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LTKM

July 23rd, 2019 by dimpledbrain
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  1. LTKM is an interesting case – it got a takeover offer at RM1.35/share (which represents ~20+% increase over last price)
  2. It has been on a downtrend since March 2015. If you have been holding this since then, you will be making a loss. Unless you enter after 2018
  3. Can you see from the chart that something is brewing? Yes, but not possible to know what it is
  4. The only clue is the furious buyback by insiders since 1 March 2018 until end of last month
  5. This kind of privatization is quite rare, so if you see similar set up then you should get your radar on. (the last privatization that i got on was Epic – sometimes this is pure luck)
  6. The best source is insider news

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Penta

July 22nd, 2019 by dimpledbrain
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  1. Penta is a very interesting choice
  2. It has been on an uptrend
  3. Recently it broke out from the upchannel to form another smaller upchannel
  4. The low it will go to test- at around the RM3.20 area (highlighted yellow)
  5. The lowest it can go RM3.15 area (lower of the upchannel) – BET ON for next one month. Come claim RM10 if otherwise
  6. It can go as high as it will go.
  7. Set trailing stop loss accordingly

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FBM KLCI

July 19th, 2019 by dimpledbrain
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  1. FBM KLCI has been on a downtrend since April 2018 and this is confirmed by Sept 2018.
  2. Looking at the current chart with the trend channels i drew, i think it can go to as low as 1550. It will first touch 1640 (mid channel) for this to be true
  3. If it breaks above 1670 and can stay there, then it will form an uptrend (which needs to be confirmed later on)
  4. Let’s revisit this in 2-3 months’ time.

Why I’m doing this:

  1. Penning this down so that I can know the accuracy of my prediction
  2. For something to be useful, it must be predictable. So let’s see how far this can go
  3. Will be posting on individual stocks too in the future – so stay tuned

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