Introduction
Portfolio construction requires effective market analysis that can be done with use of different methods. In that respect, an investor of short term trader can rely on technical or fundamental analysis or even depend on recommendations by the financial market analysts. In that view, this portfolio report presents a summary of the strategies and the sources used in making short trades; mainly targeting one to two day trades. The report begins by providing a summary of the strategies applied and the sources used followed by a comprehensive explanation of the individual trades whose gains are calculated in a separate excel file.
Strategies
Technical analysis mainly involves the study on supply and demand forces in the market attempting to determine the direction, or the trend, that securities are likely to take or continue with in future. Thus, the approach basically, involves an attempt to understand emotions across the markets by studying market moves and individual stocks as opposed to the study of the securities’ components. Regarding the strategies, the technical analysis approach has varying strategies that a trader can use to pick the securities and make decisions regarding their sale. With that, this portfolio construction is constructed using the following technical analysis strategies
Support and resistance strategy:
Among the key concepts in the technical analysis are the support and the resistance . They represent the levels which technicians expect securities to begin increasing following a decline; the support, or begin decreasing following an increase; the resistance. Thus, trades are made around those important levels as they are indicators of the way a stock is likely to bounce. Thus, the trades involves entering long position when there is a view that a support has been reached and making short trades given the view that a resistance point has been reached. The concepts of support and resistant levels are demonstrated on the following chart.
Moving average
The strategy is used where the 9 days moving average of the stock price is applied as the indicator of the trend. With that, a stock price touch on the moving average is used as resistant or support point depending on the price movement. In that respect, if the price touched the line while on the upward trend, it would be considered a resistance level while a touch by a falling price would be considered a support level.
Bollinger band
The Bollinger band that entails the trend lines encroaching the stock’s price movement is applied as support and resistant points that are observed for possible trades. The upper line of the Bollinger band would be considered as a resistance point for a security price while the lower Bollinger band line would be considered a resistance level.
Source
In the trading session, the source of information that was sought was in regard with those stocks that had momentum. With that, the trader observed the stocks that appeared as the significant movers for the period of the Bchart site. With that, the decision would then be made regarding the position entry on basis of the above discussed strategy. Further, the Bigchart site was also the source of the chart analysis information regarding the Bollinger band and moving averages. That is given the site has an interactive chart that is easy to use and customize depending on the trader’s desired strategy application. With that, the trader was able to customize the moving average and the timeframe of choice to suit the short term trading target as desired.
Sources
Regarding the sources of information on the securities market, the trades were done relying on the following analysts
Trades
With use of the above mix strategies approach, the trades summarized in the following table were made with the individual trade being analyzed with help of a chart.
Source: (Bigchart, 2016)
Microsoft
The long trade on the Microsoft stock was made on 11th April 2016 at a price of 54.31 and sold the following day 12th April 2016 with a 0.63% gain. The long position entry on the 11th was informed by the stock price touch on the support point at the entry price while the exit on the following day was informed by the price touch on the 11 days simple moving average line. With that, the entry was considered with the view that the price would rise after touching the resistance point while the exit was on the view that the price would fall after touching the 11 days moving average level.
Source: (Bigchart, 2016a)
Apple
The apple stock was bought on 28th march at $ 105.15 and sold on the following day 29th match 2016 at a price of $107.68 with a 2.41% capital gain. The long trade transaction was informed by the stock price touch of the 11 days simple moving average as the support while the sale on the following day was informed by the price touch on the upper bollinger band line, which indicated a possible resistance level. The price movement during the trade session is as summarized in the following chart.
Source: (Bigchart, 2016b)
SPXC
SPXC corporation long trade entry was on 23rd March at a price of $13.54 while the exit was 6 days after at a price of $14.74. That represented a capital gain of 8.86%. The long position entry was informed by the stock price touch on the 9 days moving average level. However, the stock price remained within the Bollinger band for the 6 days period during which no exit was made until the 29th when the price touched the upper Bollinger band line indicating possible resistance.
Source: (Bigchart, 2016c)
Amazon
The Amazon short trade entry on 29th March was at a price of 591.46 while the exit was on five days after at a price of $588.50. That represented a 0.5% gain on the short trade. The Short position entry on the 29th was informed by the stock price touch on the upper line of the Bollinger band that indicated possible resistance and fall in price that then followed to the exit time when it touched the moving average on 5th of April.
Source: (Bigchart, 2016d)
C.R. Bard Inc
The BCR long trade entry on 20th March was at a price of $195.17 and the exit was two days after at a price of 197.63. That represented a 1.26% capital gain. The long position entry on the 20th was informed by the stock price closing of the 9 days moving average line which was considered to be an indication for an upward momentum. On the other hand, the exit 2 days after was informed by the price touch on the upper Bollinger band line which indicated potential resistance level.
Source: (Bigchart, 2016e)
Conclusion
In view of the five stocks trading with application of technical analysis, the results indicates that all the trades were profitable with different positions including one short trade and five long positions for the moths of March and April. The analysis also indicates that all the trades were purely done on the guide of the support and resistance level indicators where the upper and lower Bollinger band lines acted as the resistance and support levels respectively. Also, the moving average live was also considered as a resistance or support point depending on the price trend. With that, the application of the technical analysis strategy can be considered as having being successful in making profitable trades.
References
Big Chart, 2016a. Microsoft Stock Chart. Retrieved 14 April 2016 from, http://bigcharts.marketwatch.com/interchart/interchart.asp?symb=MSFT&insttype=Stock&time=8&freq=1
Big Chart, 2016b. Apple Stock Chart. Retrieved 14 April 2016 from, http://bigcharts.marketwatch.com/interchart/interchart.asp?symb=AAPL&insttype=&time=8&freq=1
Big Chart, 2016c. Amazon Stock Chart. Retrieved 14 April 2016 from, http://bigcharts.marketwatch.com/interchart/interchart.asp?symb=AMZN&insttype=Stock&time=8&freq=1
Big Chart, 2016d. SPXC Corporation Stock Chart. Retrieved 14 April 2016 from, http://bigcharts.marketwatch.com/interchart/interchart.asp?symb=SPXC&insttype=Stock&time=8&freq=1#P1M
Big Chart, 2016e. BCR Stock Chart. Retrieved 14 April 2016 from, http://bigcharts.marketwatch.com/interchart/interchart.asp?symb=BCR&insttype=Stock&time=8&freq=1
