I am sending this email to give you an update on the current state of the market from a charting view point and also showcase an actual trade I have open and active.

I receive a lot of emails requesting to see trades and I share some of these each quarter with my Smart Traders Mastermind group and in presentations, which I know not all of you can attend. So I thought you would be interested in the occasional update.

Let's firstly take a look at the current state of the market.

Markets wild ride

What a wild few weeks the market has been in, breaking to new lows again and trading at levels not seen since early 2004. It took 4 years for the market to rise from its 2004 price level to its highest point at the end of 2007, and less than one year to wipe out all those gains.

Bear markets can be fast and furious and you can see this years market activity from a chart of the ASX 200.

The market made its last high on November 2007 at 6850 points and then proceeded downwards, breaking its upward trendline in January 2008, which was the first clear sign that the market was no longer healthy. The market has fallen half its value this year alone, ending this week at fresh lows of 3416 points.

Now, I don't know if we have hit the bottom and I will never know until a few months down the track. There could be more downside to come or the market could bottom out and start its recovery or it could rally in the short-term and then trend down again.

What I do know is the market is currently in a fully fledged down trend and the charts will continue to tell me what the trend is and if it changes. I can tell this through my market scans and through my weekly routine of analysing the world market charts, determining their current trend and what market stage they are currently in (which I detail how to do in the Smart Technical Analysis Home Study Course that I have available).

I know that I am thankful that I learned to trade and develop my trading plan well before the market falls hit, so I had a plan to take action. That plan has strict rules and guidelines on setting stop losses and ensuring that I follow my stop losses at all times. By doing this I was taken out of all my long-term investments earlier this year and have been predominantly trading my medium term daily system, mostly short selling. Even with the ASIC ban on short selling I have still been able to short sell through my CFD provider. You can read more about my trading systems from the FAQs link on my website.

Watch my trade progress

I will send an email from time to time to showcase a trade that I have either closed or have open and active. I thought I would start by showing you a trade that I currently have open and will keep you updated on how it progresses.

As this trade is open, I am unable to show you the name of the share or the current price, as this would be seen as giving advice and I am not licensed to do this. The monthly costs to become licensed are high and would mean that I would have to increase all my educational products just to recover these costs and this is unfair to you.

I will call this trade, which is a CFD trade, XYZ share. I would call it ABC share, but we all know what happened to the last company called ABC and I don't want to confuse this trade with ABC Learning Centres, which has now stopped trading.

The chart is a daily chart in a candlestick format, which is how I view all my charts. It shows small blue arrows each time my trading system gave me a short sell signal on this share. This means that on those days the share would have come up in the report from my short sell scan that I ran that day. I run a daily market scan looking for buy signals in the ASX 300 stocks (which I have received very few signals on this year) and another for sell signals on the ASX 200 list of shortable CFD shares (which has actively produced many shares to short sell this year including this share). So I had seen this share in my short sell scans for a few weeks before I entered. I waited until the share broke through its support level and my system bought it up again in the scan on 21 October.

The share had already been trending down and then paused its trend and moved sideways between a support and resistance area for 7 months. My ideal entries are on breaks of support or resistance. When it broke support I placed a sell order on the CFD at the market price of $1.68.

Before I actually entered the trade I position sized it based on my set risk and stop loss, which I had set above the support level. This confirms how many shares I can buy and I short sold that quantity of CFDs. If you don't understand position sizing I cover this in my book Smart Trading Plans and as a bonus you also receive a position sizing calculator so that you can size your positions and manage your risk on all your trades.

The trade has continued to move my way and as it does I move the stop loss my way. The blue line on the chart shows my trailing stop loss indicator that I have coded in my charting program, MetaStock. While the share continues to trade below this line, I stay with it and once it hits this line I am automatically sold out based on my stop loss that I have set in the market.

To date this share has halved in value and is still open and active, so it is in a nice profit situation with a stop loss set above the $1 mark. I will continue to monitor this trade and show you how it progresses and the actual details of the share when I get stopped out.

Ensure you have a trading plan

If you don't have a trading plan, then stop trading and do not trade until you complete one. Every professional trader has a plan and they are the ones surviving and prospering in this market. That is why I wrote my book Smart Trading Plans, to assist traders in developing a trading plan. It is one thing to know that you need a plan, it is another to take the time to develop a plan.

Until the next update, take the time to learn from the current market conditions and ensure you update your trading plan to handle this kind of market, or start a trading plan if you do not have one. My book Smart Trading Plans comes with a free Trading Plan template to assist you in doing this if you don't have one.

Cheerio

Justine Pollard
Author, Private Trader & Trading Mentor
'Discover the Smarter way to trade'
www.smarttrading.com.au
justine@smarttrading.com.au