Aaron
Lynch
|
ANZ bank recently acquired the New Zealand unit of Britain's Lloyds TSB Group, and with it doubled its market share to become New Zealand's biggest bank. This caused a trading halt on ANZ shares for 2 days and allowed all the market participants to digest this deal. Reading the comment from most of the analysts around town, ANZ acquired this business for a good price on top of the record $2.3 Billion profit reported earlier this year. |
| Those with a view to valuing companies on paper may have thought times were good for ANZ and right they may well be in the future. Technical analysts, however, would be looking at the chart or more precisely the price action reflected in the chart to guide their decision. The price action in charts is what I regard as the facts as it reflects exactly what happened, knowing this it's hard to ignore them.
The chart below shows ANZ this year and its strong run out from the March lows. Since July the price action has been sideways and range traded well into October. That's when the announcements came for the deal in New Zealand and the halt in trading occurred. Looking purely at the technical aspects of ANZ there was no real signal for a decision either way when trading was halted and if anything most standard technical indicators were mildly bullish. That's where having a plan and sticking to it is so important; we can wait for a confirmed signal from our plan and take action accordingly. For those who bought into ANZ purely based on the recent news, this decision was about to become a bitter pill to swallow.
|
click chart for more detail
| Those following the ABC's trading system would be looking for their swing chart to confirm the direction ANZ was moving, be it the first higher swing bottom or the first lower swing top. This signal occurred on November 3rd with the lower swing top confirmed and by using the ABC entry rules the anticipation of this occurring would have ensured our orders had already been placed and one of the best ABC short trades of the year was just getting started.
The entry orders were triggered on November 3rd and by using our pressure points the trade was managed to the 150% milestone or $17.71. From our planned entry at $16.37 a maximum profit of $1.34 per share was possible given our orders being filled at these prices.
|
click chart for more detail
| A thorough understanding of ABC trading ensures when a strong trend is in effect you will be looking for the next trade in the same direction, as it is likely another trade won't be far away. This in fact did occur and the next short trade was confirmed on November 14th. An area for close maintenance on the second trade will be the placement of your stops. As the A to B reference range is quite large for the first trade we may find the range difficult to repeat. So in cases like this following a relative large movement in the market running your stops closely is a sensible tool in the management of this trade. As soon as the trade has covered the cost of trading I would be moving the stops to entry plus brokerage to ensure even if the market does rally next week then a zero profit, zero loss situations is the outcome. |
click chart for more detail
| Removing emotion and being patient is often the key to success in trading. By not jumping in on news and waiting for your plan to guide you, a more favourable result has been the outcome.
Good Trading
Aaron Lynch
|