This week Dale Gillham and Janine Cox discussed a number of important topics live online including the volatility observed on Australian and international markets (particularly in Asia) and what’s in store for the year ahead, as well as a forecast for the Aussie dollar which has been inching higher over recent weeks. In this presentation you will also gain an insight into some of the techniques used in their analysis.

If you would like to listen to ”2012- What’s in store for the year ahead” click here.

As we approach the New Year, millions of Australians will be thinking about what they plan to commit to in 2012. Perhaps you plan to take more time off to spend with family, start a course in something you have always wanted to pursue, cut up your credit card, save more, or lose a few kilos. Before you decide what is most important to you, ask yourself how many New Year’s resolutions you have actually followed through? We have all heard the saying ‘fail to plan, plan to fail’. Well that is usually the biggest reason why resolutions don’t come true.

This year, if one of your resolutions is related to your finances, before you commit you might like to consider this, why is it that we live in such a prosperous country and yet few people actually achieve financial independence? I find the most common answer is a lack of knowledge in how to create it, or a lack of desire or confidence to obtain the knowledge. However, many people simply fail to implement what I like to refer to as the ‘three laws to wealth creation’ which are:

1. Spend less than you earn
2. Invest your surplus wisely (at least 10% of your income)
3. Leave your investment alone so it can grow

Some of the simplest ideas are often the best. Unfortunately many people only give these principles a fleeting glance, believing they already understand them and therefore do not give them the attention they deserve. But let me ask you – are you on your way to financial independence? 

What do we expect in the market?

This month trading on the Australian share market began with a flying start, pushing the All Ordinaries index up five per cent in the first three days of trade to form a peak at 4391 points. This move gave investors hope that a Santa rally was under way, however, issues in Europe bubbled to the surface again mid-month which sent the market back into the support zone between 4100 and 4200 points. Although the fall indicates that the probability of a strong rally unfolding into the New Year is unlikely, the analysis suggests share prices will lift the index back above 4200 points very soon.

The outlook for 2012 so far it is shaping up as more bearish than bullish, particularly in the first few months of the year. Smart investors will be mostly in cash and ready for some good growth opportunities towards the middle of the year. While we wait for the market to confirm its next move, watch for reports on retail sales figures and the debt situation in Europe as this will increase volatility across world markets.

On behalf of the Team at Wealth Within I would like to wish you all a very merry Christmas and a safe and happy new year.

Visit our Facebook page for links to more detailed discussions on world markets.

Dale Gillham

Chief Analyst, Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to learn to trade shares and become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.For more information please visit www.wealthwithin.com.au

This is the finale in the three part series of How to be Trendy. In Part 1 I explained how to recognise a trend and this was followed with how to define the start of a new longer term trend and the end of an uptrend.

As promised, in Part 3 let me show you a simple set of rules to use as triggers that tell you when to buy and sell shares.

For the medium to longer-term trader, you need to incorporate into your analysis a tool called a trend line, so that you only buy when a stock changes from a downtrend to an uptrend. Therefore, to get started you need to define the parameters of an uptrend.

To do this you start at a peak in the price of a stock and then look for successively lower peaks and troughs as shown in Figure 5. If this was a chart of weekly price data you should be able to identify that the stock is trending down.

Now get out your ruler and pencil, and draw a line across the peaks of the downtrend as shown; you need two or more peaks to make a tentative trend line or three peaks to make a confirmed trend line. Whether or not the line you have drawn is tentative depends on how far the peaks are from the line.

Figure 5

The confirmed trend line provides comfort in knowing that there is a resistance in price activity when a stock reaches the line. When a stock is below the line, you should not own it as it is in a downtrend and has a high probability of falling further. However, when it breaks above the trend line we know with higher probability that the trend is most likely changing from down to up.

Rules of entry will vary from trader to trader; however, it is generally accepted for a medium to longer-term trader that on a weekly price chart, when a stock has two weekly closes above a trend line it constitutes a buy signal.

For the short-term trader, similarly, when the stock has two weekly bars clearly above the trend line this gives the same signal. However, you can also perform this exercise on a daily chart with your buy rules determined based on the daily price action, not weekly. That said, the number of short term traders I have met who dramatically changed their odds by waiting for the entry on the weekly chart would amaze you.

When exiting a stock your trend line and exit rules are exactly the same only upside down. By this I mean that the stock needs to be in an uptrend, and have an uptrend line touching the troughs of the stock. Once the stock closes twice below the trend line you would sell.

I have included a graph below of Wesfarmers to demonstrate where you would buy and sell using both up and downtrend lines.

If you enjoyed the How to be Trendy series and would like to learn more about how you can learn to trade the market visit us at Wealth Within Institute .

If you want more practice in applying what I have shown you in the series, then for around $30.00 you can get what you need in my book ‘How to Beat the Managed Funds by 20%’ . This is where I take you through a portfolio situation and show how using trend lines provided very profitable results, and more importantly, how this strategy will help you to minimise your risk in the market.

Dale Gillham

Chief Analyst, Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to learn to trade shares and become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.For more information please visit www.wealthwithin.com.au

Register for the Online Seminar Understanding Market Cycles – Where to Next?

On the 7th December I will be conducting two online seminars for First Prudential on the above subject. One will. be at 12.30pm and the other at 6.30pm.

Decide your prefered time and then click on the appropriate link relating to that time below.

Wednesday 7th December 12.30 pm to 1.30 pm AEDT session

Register for the Online Seminar Understanding Market Cycles – Where to Next? 

Wednesday 7th December 6.30 pm to 7.30 pm AEDT session

Register for the Online Seminar Understanding Market Cycles – Where to Next?

I hope you enjoyed Part 1 of How to be Trendy where I demonstrated how to recognise a trend. In this article I will draw on the knowledge of WD Gann and others to give you the next piece of the puzzle.

Obviously, you would not want to get in near the end of the uptrend. So, how do we define which is the start of a new longer term uptrend and the end of the uptrend?

This is where we look to WD Gann’s trend theory and others. Gann states that a counter trend is 1 to 4 bars or 7 to 11 bars. For those of you who don’t know, a counter trend is a movement in the opposite direction to the prevailing trend.

As illustrated in Figure 4 below, we have a stock that has 5 bars (daily or weekly) moving the price in one direction followed by a movement of two bars in the opposite direction. From this point, the stock turns and moves down in price in the same direction as the original 5 bars.

Once this happens we can assume that the two bars that moved opposite or counter to the original 5 bars was in fact a counter trend. The original 5 bars, however, are part of a trend and not part of the counter trend as 5 bars fall outside of Gann’s theory for counter trends.

The trend itself, however, must fall outside the parameters of a counter trend. This means that if a stock has been rising for more than 11 bars then it is considered to be in an uptrend. If it has only risen 3 bars then it is quite possibly only in a counter trend or a movement counter to the trend. 

The additional countertrend information you gain from your charts will assist you in assessing a trend when using Dow’s theory (as discussed in Part 1) of higher peaks and troughs for uptrends and lower peaks and troughs for downtrends.

Now that you have completed Part 2 you will be wanting to know what’s next. At this point you have a reasonable understanding of how a trend unfolds, and let me tell you, once you start to learn how to read the trend really well the rest of the puzzle will start to fall into place.

It is like learning to read a new language, as you see the symbols you connect them to a meaning, and the same principle applies when you learn to read the charts. Once you have the knowledge to interpret the information in the price charts you have the ability to tap into the wealth of the market for life.

If you would like to continue your journey into understanding trends there is another area I would like to give you an insight into, and that is the art of drawing trend lines. I refer to it as an art because most of the people who come to Wealth Within Institute with some prior knowledge about technical analysis typically have the application of trend lines wrong.

I have found trend lines to be one of the most effective tools to use when making decisions related to risk management for both traders and investors, and therefore it is important you get this right.

In my book ‘How to Beat the Managed Funds by 20%’ I show people how you can be profitable using trend lines, a price chart, ruler and pencil. In Part 3 I want to share with you some of the principles I talk about in my book, including a simple and yet powerful set of rules to buy and sell with when using trend lines.

Dale Gillham

Chief Analyst, Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to learn to trade shares and become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.For more information please visit www.wealthwithin.com.au