A Not So Convicted Trade Idea

Have you ever come across a trading idea that you are not 100% convicted about it? I do feel it this time. Nevertheless, I choose to share this simple trade idea in order to give a more balanced and realistic view of the world of trading / investment. It is a world filled with contradiction, unpredictability and randomness.

Trend followers would think that a bullish trend is established when the short, medium and long term moving averages are all aligned upward as well as providing “strong support” for the share price. Without undertaking detailed backtesting on the soundness of this hypothesis, I perform a simple screening on Malaysian-listed securities with the condition that the share price of a security has to be higher than its 20D MA, which in turn higher than its 50D MA and which in turn to be higher than its 200D MA.

As I am BOTH a technicalist and a fundamentalist, I include a minimum ROE >10% for the past 3 financial years as part of the screening process. Strictly for illustration – this is the summary of the screening results:

Screening_16072017.png

One of the screened securities is glove producer, Comfort Gloves Berhad (established in 1993). From the graph below, it is quite apparent that based on the latest closing share price, it is trading above its 20D, 50D and 200D moving average lines.

TripleMA_Comfort.png

Fundamentally, it is currently in a net cash position:

BS_Comfort.png

Prospects seem rather cautiously optimistic.

Prospects_Comfort.png

The not-so-convicted part 

Here’s the contradictory part. Say the current price is MYR0.88. If we set a possible target of MYR0.95 and a stop-loss of MYR0.79 (based historical high-low in the past 2-3 months), the reward-to-risk ratio is only 0.78x, which is way below my  minimum threshold. Alternatively, I could tighten up the stop-loss to improve the ratio. Frankly, a stop loss point has to be a point that we  are confident that it is able to filter out the unnecessary noises. 

Entry_Comfort.png

 

 

DISCLAIMER

  • THIS IS A PERSONAL BLOG Of KEN UTAU AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. 
  • ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS.
  • IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION.
  • SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS.
  • THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES

Author: Ken Utau

Markets Observer + Food Lover

One thought on “A Not So Convicted Trade Idea”

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