Trend Trading: A Seven Step Approach to Success (Daryl Guppy, 2004)

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Probability
  • Sideway: continue moving sideway is 70% while up and down is 15% each.
  • Uptrend: continue moving up is 75% while spike up is 15% and down is 10%.
  • Downtrend: continue moving down is 80% while spike down is 10% and up is 5%.
Our trading philosophy rests on five foundation beliefs:
  1. Everybody has the same information that we do, or more. 
  2. Price behaviour reflects crowd emotion. 
  3. Today's price is a continuation of yesterday's crowd emotion. 
  4. Future price behaviour is best analysed in terms of a probability matrix. 
  5. Risk is directly related to price and is manageable.
Harm minimisation
  1. Recognising the destructive behaviour. Large losses are a strong hint there is a problem. 
  2. Sidetracking the behaviour by removing the trigger. This may mean changing the way you see the market.
Trend line application


Trend line analysis and trade management

Parabolic curve
  1. Parabolic trends often collapse very rapidly, often with prices gapping downwards. 
  2. Parabolic trends have precisely defined time limits.

Ex-dividend trend offset

GMMA in bull
  • Compression. Early in the breakout the long-term group compresses as investors reach agreement on the value of the stock. 
  • Direction. Compression indicates agreement. The direction of the compression provides clues to the future development of the trend. We look for compression and upwards bias.
  • Collapse. It takes a lot of effort to break out of a downtrend. These rallies are short lived, and we expect them to collapse. The nature of the collapse in the short-term group provides clues to the strength of trader activity. 
  • Rapid bounce. A fast bounce and recovery in the short-term group confirms increased trading activity and this forces interested investors to bid higher to get stock.
Darvas box


Pretest
  • An initial selection test to find a group of trading candidates. 
  • A visual test. 
  • A trend line test.
  • A character test using a Guppy Multiple Moving Average.
  • An entry test using a count back line.
  • A position size or price test.
Mixed thoughts


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