TRADING GMMA TRENDS

By Daryl Guppy

The trend has accelerated so its time to start protecting open profits in face of
the inevitable pullback. The stop loss is placed near the centre of the short term GMMA.
The underlying trend is strong, but the price activity is developing a bubble.
The case study SCG GMMA trend trade test support near the lower edge of the
short term GMMA. The GMMA is well separated and this shows investors are absorbing
the selling pressure.

This is a classic GMMA trend trade. The objective in these types of trades is to capture
the rebound from the support offered by the long term GMMA.
The GMMA conditions are:
 Good separation in the long term GMMA. This shows good support from
investors.
 A repeated pattern of the short term GMMA testing the long term GMMA as a
support level.
 A repeated pattern of price testing the upper area of the long term GMMA and
then rebounding.
 A steady and sustained uptrend from November 2015.
These features set up a classic GMMA trend trade with an entry at a point of temporary
price weakness in the trend.
 We add SCG as the rebound develops on Friday May 13. Entry is near $4.62. The
stop is just below the low of the previous drop. It is placed at $4.53. This puts 0.39% of trade
capital at risk. There is room to test the bottom of the long term GMMA near $4.48. A stop
here puts 0.61% of total capital at risk. This makes the trade a low risk entry.

Heres the marked to market progress for the equity trade and the CFD trade. The
CFD trade delivers a much better risk reward ratio return.

For case study purposes we add 4,329 shares at $4.62 for a total cost of $20,000.
There is no method to calculate an upside target with this type of trade. The previous high
near $4.83 is a noted point, but this is a very low return of 4.55%. For calculation purposes we
use this as the first profit target. The next target is $5.40 to $5.50.

The return can be boosted using a CFD. The risk of derivative trading is partly
managed by reducing the size of the trade to $10,000. However, the stop loss must be
tightened to $4.27 to keep the portfolio risk at 2%. On the plus side. An exit at the lower target
of $4.83 gives a $9,093 profit on the trade.
We add the CFD execution of this SCG trade to the case study portfolio so readers
can compare the methods and the risks.