Security Price and Your Bottom Line. Presented by Scott McCormick, CMT DYAD Capital Management Group, LLC

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1 Security Price and Your Bottom Line Presented by Scott McCormick, CMT DYAD Capital Management Group, LLC

2 Disclosure Acknowledgement: This course of instruction will prepare you to actively invest/trade securities and/or other financial instruments only for your own account at an appropriate financial firm which utilizes the electronic transmissions of securities and other financial instruments to execute trades for its customers. This course is not preparation to be a Licensed Broker in the financial industry. Representations: Student acknowledges the DYAD Capital Management Group, LLC (DCMG, LLC) has made no representations or warranties. Moreover, Student recognizes and acknowledges that individual performance depends upon the individual skills, time availability and dedication of each Student in the training program. This Agreement represents the entire understandings, if any, either oral or written. Moreover, DCMG, LLC training program should not be construed as a recommendation or an offer to buy or sell any security or the suitability of any investment strategy for the Student. The purchase, sale, or advice regarding any security, other financial instrument or system can only be performed by a licensed Industry representative such as, but not limited to a Broker/Dealer, Introducing Broker, FCM and/or Registered Investment Advisor. DCMG, LLC currently offers both educational and Investment Advisory services, but keeps said services separate, and requires a signed Investment Management Agreements before offering personal investment advice. All purchasers of DCMG, LLC educational training programs are encouraged to speak with a licensed representative of their choice regarding the appropriateness of investing/trading or of any particular investment/trading strategy. Risk Disclosure: No offer on our part with respect to the sale or purchase of any securities is intended or implied, and nothing contained herein is to be construed as a recommendation to take a position in any market. It is possible that at this date or some subsequent date the officers of DCMG, LLC own securities, or buy or sell securities mentioned in this presentation or those not so mentioned. The intent of the information is for instructional purposes only. The material presented herein has been obtained or derived from sources believed to be accurate, but we do not guarantee its accuracy. All trading involves high risk; past performance is not necessarily indicative of future results. There have been no promises, guarantees or warranties suggesting that any trading will result in a profit or will not result in a loss. Property of DYAD Capital Management Group, LLC 2

3 Objectives Why use technical analysis at all? Staying on the Right Side of the market is really staying to the left! Tools of the trade Don t forget your stop! Now what do I do? Property of DYAD Capital Management Group, LLC 3

4 Why use technical analysis at all? From my point of view, the investors are the big gamblers. They make a bet, stay with it, and if all goes wrong, they lose it all. Jesse Livermore Technical analysis helps the investor: Recognize long term trends Identify when stocks have gone on sale Recognize when long term trends are over Identify where to place a proper stop Technical analysis is not about telling the future. It s about recognizing the present and telling you when your future is at RISK! Property of DYAD Capital Management Group, LLC 4

5 Why use technical analysis at all? AIG Rolling 5 Yr Total Return vs. Technicals Rolling 5 YR Total Returns Technical Analysis Property of DYAD Capital Management Group, LLC 5

6 Why use technical analysis at all? WMT Rolling 5 Yr Total Return vs. Technicals Rolling 5 YR Total Returns Technical Analysis Property of DYAD Capital Management Group, LLC 6

7 Why use technical analysis at all? AAPL Rolling 5 Yr Total Return vs. Technicals Rolling 5 YR Total Returns Technical Analysis Property of DYAD Capital Management Group, LLC 7

8 Staying on the Right Side of the market is really staying to the left! Three types of trends Up trend Series of higher lows and higher highs Up trend reversal is a lower high followed by a lower low Down trend Series of lower highs and lower lows Down trend reversal is a higher low followed by a higher high Sideways trend Series of roughly equal highs and lows Property of DYAD Capital Management Group, LLC 8

9 Staying on the Right Side of the market is really staying to the left! Drawing trend lines (need at least 2 points) Up Trend Connect the rising lows Down Trend Connect the declining highs Sideways Trend Connect the horizontal highs and lows Property of DYAD Capital Management Group, LLC 9

10 Staying on the Right Side of the market is really staying to the left! Basic Trend Line Strategy Up Trend If price is on the left hand side of the trend line expect trend to continue If price moves to right hand side look for sideways market or up trend reversal Property of DYAD Capital Management Group, LLC 10

11 Staying on the Right Side of the market is really staying to the left! Basic Trend Line Strategy Downtrend If price is on the left hand side of trend line expect trend to continue If price moves to right hand side expect sideways trend or down trend reversal Property of DYAD Capital Management Group, LLC 11

12 Staying on the Right Side of the market is really staying to the left! Basic Trend Line Strategy Sideways Trend In a sideways trend look for price to close above or below horizontal trend lines Property of DYAD Capital Management Group, LLC 12

13 Staying on the Right Side of the market is really staying to the left! Basic Trend Line Strategy Sideways Trend In a sideways trend look for price to close above or below horizontal trend lines Property of DYAD Capital Management Group, LLC 13

14 Staying on the Right Side of the market is really staying to the left! Basic Trend Line Strategy Sideways Trend Buy the lows and sell the highs Property of DYAD Capital Management Group, LLC 14

15 Tools of the trade Moving Averages Identify Trends Stochastics Find stocks on sale Fibonacci Additional confirmation of price highs and lows Multiple Time Frame Analysis Get the right perspective Property of DYAD Capital Management Group, LLC 15

16 Tools of the trade Moving Averages Identify Trends Two Basic Types Consider Length of Moving Average based on anticipated holding period Property of DYAD Capital Management Group, LLC 16

17 Tools of the trade Moving Averages Identify Trends Used as dynamic trend lines Basic trend line strategy applies Price is above (let hand side) upward sloping moving average the trend is up Price is below (left hand side) downward sloping moving average the trend is down Property of DYAD Capital Management Group, LLC 17

18 Tools of the trade Moving Averages Two Basic Types Simple Moving Average Calculated by adding the closing value of a security for a specific period of time, and then dividing by the specifies time period Exponential Moving Average Similar to the Simple Moving Average, but is weighted towards most recent data making it more sensitive to price Property of DYAD Capital Management Group, LLC 18

19 Tools of the trade Moving Averages Consider Length of Moving Average based on anticipated holding period Short Term 10,20 Day Mid Term 50 Day 10, 12,26 Week Long Term 200 Day 52 Week 12 Month Property of DYAD Capital Management Group, LLC 19

20 Stochastics Find stocks on sale Identifies where the current price is relative to it s price range for the last 14 periods How it works Calculates a specific percentage value versus range of Below 25 indicates security trading within the bottom quartile Above 75 indicates security trading within top quartile Basic strategy Up trend, look for stochastic to be below 25 for buying opportunities Down trend, look for stochastic to be above 75 for selling opportunities Tools of the trade Property of DYAD Capital Management Group, LLC 20

21 Tools of the trade Fibonacci Additional confirmation of price highs and lows Measures previous price swings and identifies mathematic ratios which price has a tendency to gravitate towards Most common ratios 38.2%,50%61.8% 23.6%, 78.6%,88.6% Property of DYAD Capital Management Group, LLC 21

22 Tools of the Trade Fibonacci Additional confirmation of price highs and lows Measures previous price swings and identifies mathematic ratios which price has a tendency to gravitate towards Most common ratios 38.2%,50%61.8% 23.6%, 78.6%,88.6% Property of DYAD Capital Management Group, LLC 22

23 Tools of the trade Multiple Time Frame Analysis Get the right perspective Utilize Moving Averages and Stochastics in the appropriate time frames identifying the dominant trend while finding stocks on sale Long Term Weekly, and Daily Property of DYAD Capital Management Group, LLC 23

24 Don t forget your stop! Risk Management: Proper stop placement In up trend below the previous low In down trend above the previous high Remember that risk is the difference between where you enter, and where you exit at a loss; the smaller the better!!! Property of DYAD Capital Management Group, LLC 24

25 Don t forget your stop! Risk Management: Position Sizing The maximum size stock position based on maximum risk in an account and the trade risk (defined as the difference between entry and stop price) Example: $100,000 Account Max Risk 1% ($100,000*.01=$ ) Entry Price Stop Price Risk= = $2.43 (8.9% Risk) $1000/$2.43= 411 Shares (round to 400) Property of DYAD Capital Management Group, LLC 25

26 Now what do I do? Analyze, Strategize, Execute! Finding Stocks Resources Property of DYAD Capital Management Group, LLC 26

27 Now what do I do? Analyze, Strategize, Execute! Analyze Price: Identify prior peaks and troughs (highs and lows) for support and resistance Is the security in an up trend, down trend, or sideways trend? Is the price above an upward sloping moving average, or below a downward sloping moving average? Are the stochastics above 75 or below 25? Property of DYAD Capital Management Group, LLC 27

28 Now what do I do? Analyze, Strategize, Execute! Strategize Up Trend If the trend is up, and price is on the left hand side of the trend line/moving average look for buying opportunities (oversold stochastics) Down Trend If the trend is down, and price is on the left hand side of the trend line/moving average look for selling opportunities (overbought stochastics) Sideways Trend If the trend is sideways, and price is between the horizontal trend lines consider going long after a close above the horizontal trend line, or buy at the lower horizontal trend line, and sell at the upper horizontal trend line (look for overbought, and oversold stochastics) Property of DYAD Capital Management Group, LLC 28

29 Now what do I do? Analyze, Strategize, Execute! Execute Identify Entry Price Identify Stop Loss Exit (stop market) Calculate trade risk Calculate position size Let er rip!!! Property of DYAD Capital Management Group, LLC 29

30 Now what do I do? Finding Stocks Select preferred fundamental criteria Look for stocks with price above key moving averages (200 day, 26 week, 52 week) Look for oversold Stochastics Also consider market cap, beta, price, volume (liquidity) Example: Mkt Cap>$500 Million Beta < = > 1 Price >$10.00 Average Daily Volume > 500,000 Property of DYAD Capital Management Group, LLC 30

31 Now what do I do? Resources Stockcharts.com (Free and Subscription Charting and Stock Scanner) FINVIZ.com (Free and Subscription Stock Scanner) Trade Station (Professional/Retail Charting Platform) esignal (Professional/Retail Charting Platform) Property of DYAD Capital Management Group, LLC 31

32 Thank you for Attending Q&A Future Questions? Scott McCormick,cmt at Reference AAII Meeting Property of DYAD Capital Management Group, LLC 32

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