Micro Stock Trader: Week 3 Trading Review

Showing posts with label Week 3 Trading Review. Show all posts

Thursday, January 16, 2025

URC Testing Week 3: Coincidental Alignment with Fundamental Valuation

At Micro Stock Trader, we strictly adhere to technical analysis as the core of our trading strategy, and this approach remains unchanged as we continue to test and refine our Modified 10-Step Trading Plan. Interestingly, during Week 3 of our testing period, we observed a notable coincidence: the technical stop-loss level we identified near Php 68.00 closely aligns with the fundamental valuation level of Php 67.31, as presented by The Retail Fund Manager (TRFM) in his analysis of URC, based on available 3rd Quarter 2024 data.

Part of our scenario for Week 3 is the Breakdown Below Php77.07: We said that: "If the price breaks below support, it could retest the Php73.80 level. A breakdown below Php73.80 would invalidate the bullish outlook and require a defensive strategy."

Small Position Sizes: A Key Element in Managing Trading Risk

While our focus remains entirely on technical analysis, we found it noteworthy that a purely technical level coincides with a fundamental valuation from an independent source. This alignment provides an interesting benchmark but does not influence our decision-making process.

Representation of fundamental and technical analyses coincidentally aligning in their outcomes despite being independent approaches.

Independent methods, coincidentally aligned: Fundamental and technical analyses point to the same trading scenario.

Our Strictly Technical Approach

In our Modified 10-Step Trading Plan, we set a technical stop-loss slightly below Php 68.00 based on:

Key support levels observed on the daily chart and 5-minute chart.
The objective of cutting losses before a deeper decline during high-volatility sessions.

This level was identified solely through price action and market behavior—hallmarks of technical analysis. It just so happened that TRFM’s Php 67.31 valuation, derived from fundamental analysis, aligned closely with our stop-loss level, creating a coincidental but interesting point of reference.

TRFM’s Fundamental Valuation as a Benchmark

For context, TRFM provides the following fundamental valuation scenarios for URC based ending 3Q2024 results:

Php 74.10 for a flat growth scenario: URC’s fair value assuming modest growth.
Php 67.31 for a scenario indicating company weakness: A more conservative outlook based on weaker performance.
Php 60.00 something as the bargain price: A deeply discounted price indicating significant undervaluation.

We introduced TRFM’s valuation purely for benchmarking purposes. It provides an external perspective on what the stock might be worth based on fundamental factors. However, we do not incorporate fundamental analysis into our trading strategy, nor does it affect our technical decision-making.

URC (Universal Robina Corporation) Stock CRASHED and Will CRASH DEEPER? BUY The Dip NOW? by The Retail Fund Manager PH Channel, YouTube, https://youtu.be/G7tXQ477zHY?si=gijeabQrHKVKfkts

Coincidental Alignment: Php 68.00 and Php 67.31

Despite our adherence to technical analysis, the coincidence between our technical stop-loss level near Php 68.00 and TRFM’s fundamental valuation of Php 67.31 is noteworthy for two reasons:

Reinforces Our Confidence:
Even though our stop-loss was derived purely from technical signals, its alignment with a fundamental valuation adds an extra layer of confidence that we are managing risk effectively.
Provides an Interesting Benchmark:
While we remain technical traders, it’s useful to know that an independent fundamental valuation aligns with our technical analysis at a key level. This information, though not actionable for us, offers a broader context for our trades.

Executing Our Trading Plan

To test our strategy this week, we strictly adhered to our technical rules—entirely independent of any influence from fundamental analysis—and aimed to assess whether we could achieve a successful outcome despite heightened market volatility. Our approach was guided by the following rules:

Hard Stop-Loss at Php 67.75:
We set a hard stop-loss just below our technical support level of Php 68.00 to avoid endlessly adjusting it downward during a potential decline.
Profit Target at Php 73.50:
Our profit target was set at Php 73.50, a level identified through technical resistance analysis.

Key Takeaways

Strictly Technical Approach:
Our stop-loss and profit targets were derived entirely from technical analysis. The coincidence with TRFM’s fundamental valuation was purely incidental and did not influence our trading decisions.
Benchmarking Without Integration:
TRFM’s valuation serves as an external benchmark for comparison, but it does not form part of our strategy. We remain committed to technical analysis as the core of our approach.
Discipline in Execution:
By sticking to our hard stop-loss and profit target, we avoided emotional trading and ensured that our decisions were guided by predefined technical rules.

Final Thought

While we maintain a strictly technical trading strategy, recognizing external benchmarks can provide useful context. The coincidence between our technical stop-loss level of just below Php 68.00 and TRFM’s fundamental valuation of Php 67.31 was an interesting point of reference, but it did not affect our trading plan. We continue to focus on technical analysis, price action, and disciplined execution to guide our trades.

If you're interested in following our journey as we refine our trading strategy, stay tuned for more updates as we approach the end of Week 3!

Would you like to see additional analysis based on this week’s market activity? Let us know!

Disclaimer: This post is for informational purposes only and should not be considered financial advice. Always do your own research before making any trading decisions.

Tuesday, January 14, 2025

Refining the Micro Stock Trader Strategy: The Modified 10-Step Trading Plan

Testing and Refining Our Trading Strategy

Over the past few weeks, we have been testing and refining our trading strategy to better adapt to real-time market conditions. This modified 10-step trading plan builds on the foundational principles we originally adopted from Oliver Velez’s approach, while incorporating the lessons we’ve learned from actively trading in volatile markets.

Why We Revised Our Strategy

The stock market is a dynamic environment, and while a well-defined strategy is essential, flexibility is equally important. Our recent trades revealed the need for a more adaptive approach, especially during periods of sharp price movements, multiple gap-downs, and high volatility. The revised plan introduces specific rules for counter-trend entries, improved risk management, and clear criteria for re-entries and stop-loss adjustments.

URC Daily Chart (January 14, 2025): The price action shows a significant gap down with high volume, testing key support levels as part of our Week 3 analysis in refining the Micro Stock Trader Strategy.

The 10-Step Trading Plan

Step 1: State

Understanding the market’s current phase is the foundation of our strategy. Markets operate in a continuous cycle with four key phases:

Up: Rising prices, ideal for long trades.
Top: Slowing momentum, signaling potential reversals.
Down: Declining prices, suitable for short trades or waiting for a bottom.
Bottom: Stabilizing prices, indicating potential reversals.

We also observe the space between the 20-period and 200-period moving averages:

Tight/Narrow State: Indicates consolidation with breakout potential.
Wide State: Reflects a strong trend.

Current Phase: Consolidation, with potential for a breakout or breakdown.

Step 2: Position and Location

We focus on identifying trades during the Up and Bottom phases of the cycle.

Position: Determines whether the price is above or below key moving averages.
- Positive Position: Above both the 20-MA and 200-MA, favoring long trades.
- Negative Position: Below both moving averages, favoring caution or short trades.
Location: Refers to how close the stock price is to the moving averages.
- Near Location: Close to the moving averages, signaling potential breakouts.
- Far Location: Distant from the moving averages, signaling potential pullbacks or consolidations.

Step 3: Assess Power Bars

Look for green power bars or narrow range bars near resistance, which could signal a potential breakout.

Step 4: Entry

Enter long positions if the price breaks above a key resistance level with strong volume. Alternatively, enter near key support levels if bullish reversal signals appear.

Step 5: Place a Stop Loss

Set an initial stop loss at a logical technical level, such as below recent swing lows or a fixed percentage. Adjust the stop loss dynamically as the trade progresses.

Step 6: Color Change

Monitor for a color change from red to green near key support or resistance levels, signaling potential trend reversals.

Step 7: Profit Take

Take partial profits at key resistance levels or predefined zones. Use trailing stops to lock in additional gains while allowing trades to run if momentum remains strong.

Step 8: Re-entry

Re-enter trades on pullbacks to support levels if the breakout sustains and the trend remains strong. Use tighter stop losses for re-entries and limit the number of consecutive re-entries to avoid overtrading.

Step 9: Counter-Trend Entries

Counter-trend entries are a new addition to the plan, designed to capitalize on potential reversals during extreme market conditions.

Allowed only after two consecutive gap-downs or a 5% or more drop below the 200-day MA.
Use smaller position sizes and tighter stop losses to manage risk effectively.

Step 10: Track All Trades in a Journal

Record every trade, including entry and exit prices, position size, and reasons for entry. Regularly review the journal to identify patterns and improve decision-making.

Additional Guidelines

Capital Allocation:
- Never risk more than 2% of total capital on a single trade.
- Avoid allocating more than 50% of total capital to a single stock during high volatility.
Gap-Up Strategy:
- If a stock gaps up after multiple gap-downs, wait for confirmation before entering.
Volatility Awareness:
- During high volatility, reduce position sizes and widen stop losses slightly.
Psychological Discipline

Stick to the plan and avoid emotional trading. Consistency is key, even if not every trade results in a profit.

Conclusion: Staying Adaptive While Remaining Disciplined

By following this revised 10-step plan, we aim to maintain a structured approach while staying flexible enough to handle unexpected market movements. The inclusion of counter-trend entries, tighter risk management, and clearer re-entry criteria ensures that we remain aligned with our core strategy while adapting to real-time conditions.

As we continue to test and refine this approach, we look forward to sharing more insights and results in the coming weeks. Stay tuned for updates on how this strategy performs in different market environments!

Would you like to try applying this trading plan? Share your experience with us—we’d love to hear how it works for you!