Weekly for Saturday November 7th, 2019. Based on Thursday’s CloseCONTENTS

DOES TECHNICAL ANALYSIS WORK? pg1 HARMONIC ELLIOTT WAVE part 2 pg7 READERS QUESTIONS: PORTFOLIO ALLOCATION pg10 NEWSLETTER OUTLOOK: SUPPORT REBOUND pg12 PORTFOLIO CASE STUDIES: MONEY MANAGEMENT pg13

DOES TECHNICAL ANALYSIS WORK? By Daryl Guppy

Does technical analysis work? It’s a question asked all too often and a question I get tired of answering. The answer is yes. Technical and chart analysis does work. Our personal evidence is this:

1) Over the past 56 months we have prepared trade notes three times a week for FX providers. The reliability rate for trade entry is 69.77%. Out of 708 op-portunities discussed, 494 have met the entry conditions and generated an entry. In other words, almost 7 out of 10 trade opportunities identified using technical analysis have developed as per the analysis.This is proof of analysis methodology and proof that technical analysis is an effective method of identifying trade opportunities in a single market. Of the entered trades, 87% have generated a profit.

2) For 15 years I wrote a weekly column for CNBC. These analysis notes used technical analysis to set price and index targets for oil, gold, the DOW, NAS-DAQ, Hang Seng, Kospi and other markets. The reliability rate in achieving the nominated targets was 72%. In other words, just over 7 out of 10 trade opportunities identified developed as per the analysis and achieved their nominated targets.These notes were distributed to a global audience of millions and they held me to close account.This is proof of analysis methodology and proof that technical analysis is an effective method of identifying trade opportunities in multiple markets.

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3) This newsletter was first published in 1996 and has been in continuous pub-lication for 22 years. We have run a case study portfolio that illustrates many different trading methods across many different instruments. There are times when we also ran extended 6 to 21 portfolio examples where we star-ted with a nominal $6,000 and turned it into $21,000 with $15,000 in real-ised profits- a 250% return - usually within 8 months. This followed the money management strategy discussed in SHARE TRADING.Every 6 and 12 months we provide readers with a full report and analysis of the case study portfolio trades. In the 22 year period the rates of success in generating trade entry signals was an average of 83.33%. In other words, just over 8 out of 10 trade opportunities identified developed as per the ana-lysis and achieved their nominated targets.This is further proof of analysis methodology and proof that technical ana-lysis is an effective method of identifying trade opportunities in multiple markets and across multiple trading instruments from equities to CFDs, and from FX to Index trading.

4) For four years prior to the 2008 market collapse, we provided analysis and trade notes for a Chinese financial publication and newsletter that was very widely distributed in China. These notes were published 3 times a week and used to identify short term trade opportunities using technical analysis. This was pure technical analysis because, with my reading skills, there was not enough time to read any of the information, written in Chinese, about these unknown and obscure Shanghai and Shenzhen listed companies. Across a variety of publications, the success in generating trade entry sig-nals was an average of 69%. This is further proof of analysis methodology and proof that technical analysis is an effective method of identifying trade opportunities in markets where no reliable or accessible fundamental inform-ation is available.

5) Over the past 20 plus years I have been retained by financial media in Asia and China and written hundreds of newspaper columns for financial media in

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Malaysia, Singapore and China. These columns use technical analysis to set targets for stocks, commodities and indexes. For 18 years in my work as Chartman for CNBC SqawkBox and now with Street Signs I provide real time, accurate, chart analysis with target levels. Inaccurate or unreliable targets are not tolerated by a global audience or by CNBC producers. We do not keep a separate record of the outcomes of these notes and regu-lar TV interviews, but, if the methodology failed then readers and viewers would complain, and the columns and interviews would be killed.

The consistency of results across multiple markets and for such an extended period shows the value of technical analysis and charting. Of course, there is many a slip betwixt cup and lip, so accuracy of analysis does not always translate into successful trades. That depends on how individual traders set their stops, protect their profits and are able to apply the necessary level of trading discipline and patience. However, these results do show that charting and technical analysis methods deliver consistent results with a high level of accuracy.

Feel free to use these examples next time some ill-informed broker, financial analyst or newbie Warren Buffet guru sidles up to you with a smirk on their face and asks this question.

The better question to ask is “Why does technical analysis work?” The answers to that are far more interesting and useful for trading success. In our articles we try to explain why particular methods and indicators work. This is why the newsletter is called TUTORIALS in applied Technical Analysis.

CORRECTIONFor more than two decades I have taught technical analysis and charting. I work

with some of the best in the world and am proud to be counted with them and work alongside them.

We have all become increasingly concerned with the poor quality technical analysis that is increasingly found on websites and social media platforms. This poor quality material undermines the legitimacy of technical analysis that we have worked diligently to build up. 20 years ago, chartists were literally kept in a cupboard and technical analysis characterised as some sort of witchcraft. In Australia it was pioneers like Merril Armstrong and Dawn Bolton-Smith who worked hard to prove the value of charting and technical analysis.

Now poorly understood technical analysis is being published, not just in social media, but also in some magazines. It goes beyond the legitimate alternative analysis and in many cases its just plain wrong. What to do about this rising tide of misapplication?

Its something I have discussed with John Bollinger, Martin Pring and others. We cannot educate our way out of this abyss. Nor do we want to start of destructive war with practitioners who simply provide alternative applications of technical analysis. However, we do need to call out examples which are absolutely wrong and explain why they are wrong. This is the reason for a number of ‘correction’ notes in recent months.

This week brings another ‘correction.’ This chart is called a bear flag and the analysis centres around a bear flag breakout. Flag patterns are useful because they enable accurate price target calculations.

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We suggest this is not a bear flag. It is a down sloping trading channel. In modern applications, a bear flag is a short term 5 to 10 day trade channel that immediately follows a fast price move. It is a trend continuation pattern. It is not a trend reversal pattern. Here’s the typical template example of a bear flag.

In classic chart analysis a bear flag is a reversal pattern and occurs at the top of a fast rise in price. It is used to project a downside target. Under specific conditions it may develop into a typhoon flag which indicates up trend continuation. Our preference is to apply the classic chart analysis as a trend reversal pattern.

In all cases it is a short term price pattern developing over 5 to 10 days. It is not part of a 16 month down trend.

In the chart example under discussion there is no flag pattern that fits either the modern or classic definitions.

If the calculated price targets are the same, then why does it matter? It matters because the trading channel analysis can be applied consistently across multiple charts and give the same reliable result. Analysis based on the idea this is a bear flag provides no reliable and consistent method of setting price targets. The analysis result here is a coincidence, not a reliable correlation.

A bear flag pattern has a projected price target. Once that target has been achieved there is no consistent follow-on development. The trading method is to set an exit at the projected target level because once the pattern is completed there is no consistent future high probability behaviour.

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A trading channel breakout has a different management approach. Traders watch for price behaviour is price hits the projected level. There is a high probability that price will use the projected trend line as a new resistance level and continue to decline. A sustained breakout above the target line sets the conditions for a new uptrend.

Diversity of opinion lies at the core of the market. There are no sellers if everyone agrees on the price. Sellers have a different opinion that that held by buyers. The diverse range of analysis tools means we all look at the same charts and sometimes reach different conclusions or see different opportunities. These are all valid application of analysis and we have no concerns about this. However accurate application of technical analysis is the basis of success.

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You can download the ATR indicator for MT4 at https://www.mql5.com/en/market/product/29683 Use this to improve your trade risk management.

CASE STUDY EQUITY CURVE

The case study portfolio return is $43,318.03 or 43.3% for the period starting July 1, 2019 and ending June 30, 2020.

For the year starting July 1, 2018 – 2019 the case study portfolio return is $91,794 or 91.79%.

For the year starting July 1, 2017-2018, the case study portfolio return is $115,330 or 115.3%. For the year starting July 1, 2016-2017, the case study portfolio return is $92,464.15 or 92.5%. For the year starting July 1, 2015- 2016, the case study portfolio return is $156,450 or 156.45%.

Equity trade size is generally kept constant at $20,000 in the case study portfolio so it is easier to compare the case study trades over this and other years. Unless otherwise noted in the trade management notes, all equity case study trades are managed on an end of day basis, with the exit taken at the best reasonable price on the day after the stop loss is triggered.

Warrant and CFD trades are generally kept constant at $10,000. Warrant and CFD trades are closed on an intraday basis using a guaranteed stop loss as this is a primary method of managing derivative risk.

FX trades are generally kept constant at $5000. Stops are managed intraday. This capital allocation reflects the risk in each of these asset classes.

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Register at https://promo.gomarkets.com/daryl-guppy-seminar/

HARMONIC ELLIOTT WAVE part 2By Ian Copsey

Elliott Wave, love it or hate it, has been around for a long time. Can it forecast market movements? Can it forecast precise stalling points? It’s a debate that has been around for as long as the Principle has been used and seems to have drawn both as many critics as it has followers.

My own bug-bear from over 20 years of experience practicing Elliott Wave is the apparent concentration on just labeling what is seen irrespective of whether (say) whether Wave 5 is 23.6% of the entire move from the start of Wave 1 to the end of Wave 3 or 138.2%... Just where is the ability to be able to anticipate and forecast?

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The normal Fibonacci projections which are widely quoted don’t work all that often and impulsive waves all too often stall early and missed out a wave. Looking at leading Elliotticians’ analyses their counts rarely any adhered to any relationships…

APPLICATION OF FIBONCCI AND HARMONIC RATIOS

Fibonacci is widely used but not with any precise and logical manner. Harmonic ratios are hardly used at all. Let me briefly introduce how Fibonacci derived these ratios:

In the Fibonacci sequence of numbers, each number is the sum of the previous two numbers, starting with 0 and 1. Thus the sequence begins:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610 etc

At first glance it seems an innocuous sequence but as we will see it holds quite extraordinary properties. By dividing one number in the sequence by the next the resultant ratio begins with common fractions: 1, 1/2, 2/3, 3/5… but after a while the result remains at 61.80%.

By dividing one number in the sequence by the preceding number we have similar development which sees the result remaining at 161.8%. This is the golden ratio which is found in nature, in classical architecture including the Egyptian pyramids, some Greek structures such as the Acropolis and Parthenon.

This can be developed further by dividing numbers two apart, three apart and so on in the sequence: Thus ratios a series of ratios can be generated both below 100% and also above:

Below zero:5.6%, 9.0%, 14.6%, 23.6%, 33.3%, 38.2%, 50%, 61.8%, 66.6%, 76.4%, 85.4%, 90.0% 95.4%

Above zero:161.8%, 261.8%, 423.6%, 685.4%, 1109.0% 1794.4%

The Square Root of TwoThe square root of 2, also known as Pythagoras' constant, is the positive real

number that, when multiplied by itself, gives the number 2. Geometrically the square root of 2 is the length of a diagonal across a square with sides of one unit of length; this follows from the Pythagorean theorem. It was probably the first number known to be irrational. Its numerical value truncated to 5 decimal places is: 1.41421

I do not profess to be a skilled mathematician and will go no further than this brief explanation. I was introduced to the use of the square root of two by an acquaintance in the market who described the ratio as commonly occurring within musical notes.

At first I wasn’t quite sure how to use this until I began to sit down and study wave relationships and noted that two derivations of the number frequently occurred: 41.4% and it’s “opposite” 58.6% being 100 – 41.4.

Alternative Wave RelationshipsFrom the many hours of research into the common relationships between waves

I noted those that are generated directly from both Fibonacci and the square root of two. However, I found more commonly in the trending wave sequence other ratios that can be derived from Fibonacci ratios.

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What I noted was that specifically Wave (iii) it is possible to take the ratios less than 100% and add them to 100%, 200% and occasionally 300% and 400% etc. Earlier I listed these ratios below as:

5.6%, 9.0%, 14.6%, 23.6%, 33.3%, 38.2%, 50%, 61.8%, 66.6%, 76.4%, 85.4%, 91.0% 94.4%

To this list we can add 41.4% and 58.6%.Mostly commonly extensions in Wave (iii) I find on a very frequent basis are:

176.4%, 185.4%, 195.4%, 223.6%, 261.8%, 276.4%, 285.4% and 295.4%Mostly commonly extensions in Wave (c) I find on a very frequent basis are:

85.4%, 95.4%, 100%, 105.6%, 109%, 114.6%, 123.6%, 138.2% and 161.8%

APPLYING WAVE RELATIONSHIPS TO THE HARMONIC WAVE STRUCTURE

The key to the harmonic wave structure is the requirement for all degrees of the wave structure to develop with relationships that confirm each other. For example, very clearly Wave (c) must be related to Wave (a), Wave (iii) must be related to Wave (i) and the Wave (c) of Wave (iii) must have the same target areas. Within the Wave (c) of Wave (iii) the Wave v must also develop with a ratio that confirms the same targets as the projection of Wave (i) and the projection in Wave (c). This type of harmonious development is key to confirming the structure.

Now, referring back to the chart of USDCHF in the first part of this article the following relationships were noted:

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In this example the wave relationships are exceptionally accurate. It is very important to note how the internal ABC relationships confirm the projections of Waves –i- through Wave –v-. In addition, while not shown the end of Wave (c) at 1.0434 should also be a close relationship with that of Wave (a).

In the next part of this article I shall explain more about the Harmonic Structure and how these are applied to wave structures.

Ian Copsey www.harmonic-ewave.com Ian Copsey is a veteran technician having begun his career in Foreign Exchange over 30 years ago. More details can be found on his website www.harmonic-ewave.com.

READERS QUESTIONS: PORTFOLIO ALLOCATIONBy Daryl Guppy

How do we structure a portfolio? Traditional advice tells us to use diversity and this is usually taken to mean investing in a range of different industries; banks, logistics; food; gambling etc. The idea is that one sector may be up, and this compensates for a sector that is down. We think you can get a better result simply by using an index ETF that includes all sectors and delivers the market return.

Our preference is to spread our activity across a diverse range of trading instruments and areas. This mix includes speculative, midcap and blue-chip stocks. It includes CFDs and Fx and cash. We adjust the proportional mix according to changing market conditions. This diversity and rebalancing are designed to use the best of breed opportunities when they are appropriate for the current market conditions.

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In a very strong bull market, we have no cash and are 100% invested. Returns are so strong that there is no need to supplement returns with leveraged derivative trading.

At the opposite end of the scale, an extreme bear market, we move to 100% cash. The market is often too volatile for safe short side trading. Additionally, market participants leave because they have lost all of their capital. Getting into and out of positions is difficult, so its best to stay 100% in cash. These extreme bear market conditions are infrequent and usually do not last very long.

The key to the changes in the instrument mix is the way derivatives are used to enhance returns when markets are less than extremely bullish. The changes in this allocation mix bother generate return and manage the risk in different market conditions.

In a very bearish market, we make greater use of derivatives because they deliver larger returns in a shorter time frame. In a very bearish market, the time spent in the market with each trade is a risk in itself. When time is a risk, then leverage becomes more important.

Trading CFDs allows for quick and easy shorting. However, in a very bearish market trading volumes dry up so it becomes more difficult to identify momentum trades. This is why the allocation to FX increases in this environment. Volumes are always high, so trades are easily executed. There is no difference between trading long or short so its an effective way of generating income in a flat stock market.

The key to implementing these strategies is understanding which market condition currently prevails. There is no exact turning point when one condition changes to another. However, there are useful rule of thumb guides as well as some more reliable technical methods. When TIME magazine puts a bull on the cover then its usually a sign of a strong bull market. This is a rule of thumb guide.

We use strategic GMMA and chart pattern analysis as a more reliable guide. In particular we watch for head and shoulder patterns in the index on a weekly chart to give early warning of the extremes of index activity. These changes are usually reflected in the case study newsletter portfolio where readers will see more Fx and CFD trade examples added, along with articles exploring the trading methods for these instruments. November 7th 2019A publication of Algobot Pte Ltd CRN201604500D. Copyright © 2019

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These are not hard and fast rules. We use them as a guide for how we allocate between cash and trading and how we allocate between different classes of instruments in different market conditions.

These are our preferences and not a recommendation. If you would like to share your approach, then please send your thoughts in an article to support@guppytraders.com We pay for articles.

NEWSLETTER OUTLOOK: SUPPORT REBOUND By Daryl Guppy

This is a complex structured chart with a continuous interplay between the values of the trading band and the trading channel.

This remains a slow moving reluctant market with temporary resistance near 6750. It does not have strong momentum and relies almost exclusively on external leads from the US or China. The index has rebounded form support on trade band ;line A. It has also moved above trend channel line B. The upside target is the value of the upper edge of the trade band shown as line C. Beyond this resistance comes from the upper edge of the trading channel shown as line D.

A move above 6750 confirms trend continuation within the confines of the trading channel and trading band combination. Initial resistance to any rally rebound comes from trading band line C near 6840.

The GMMA relationship continues to suggest the trend pressure is marginally bullish with the short term GMMA above the long term GMMA. November 7th 2019A publication of Algobot Pte Ltd CRN201604500D. Copyright © 2019

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The XJO is also dominated by trading bands and trading channels and this gives multiple target calculations. Unlike a trading band, the target for the trading channel breakout continues to move. The target is always the upper edge of the trading channel which forms a resistance point.

Just like a trading band, the activity in a trading channel is often a rally and retreat behaviour within the limits of the parallel bands or trend lines.

The behaviour of the XJO is set with GMMA analysis. The targets for the XJO are set using trading band and trading channel analysis.

PORTFOLIO CASE STUDIES: MONEY MANAGEMENT

Starting cash position $100,000 - no brokerage or slippage 2% of risk = $2,000 NOTE Entered date is the newsletter date which contains the case study discussion.

OVERALL PROFIT TO DATE

The case study portfolio return is $43,318.03 or 43.3% for the period starting July 1, 2019 and ending June 30, 2020.

For the year starting July 1, 2018 – 2019 the case study portfolio return is $91,794 or 91.79%.

The case study portfolio return is $156,450 or 156.45% for the period starting July 1, 2016-2017. Note that this includes 6 to 21 trade results. The case study portfolio return is $92,464.15 or 92.5% for the period starting July 1, 2015- 2016. Equity trade size is generally kept constant at $20,000 in the case study portfolio so it is easier to compare the case study trades over this and other years. Unless otherwise noted in the trade management notes, all equity case study trades are managed on an end of day basis, with the exit taken at the best reasonable price on the day after the stop loss is triggered.

CUSTOMER CAUTION NOTICE AND COPYRIGHTAlgobot Pte Ltd (CRN 201604500D) Pte Ltd is not a licensed investment advisor. This publication, which is generally available to the public, falls under the Singapore Media Advice provisions. The information provided is for educational purposes only and does not constitute financial product advice. These analysis notes are based on our experience of applying technical analysis to the market and are designed to be used as a tutorial showing how technical analysis can be applied to a chart example based on recent trading data. This newsletter is a tool to assist you in your personal judgment. It is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any particular person's investment objectives, financial situation and particular needs because readers come from diverse backgrounds, with diverse objectives and financial situations. This information is of a general nature only so you should seek independent advice from your broker or other investment advisors as appropriate before taking any action. The publication should not be construed by any reader as Publisher's (i) solicitation to effect, or attempt to effect transactions in securities, or (ii) provision of any investment related advice or services tailored to any particular individual's financial situation or investment objective(s). Readers do not receive investment advisory, investment supervisory or investment management services, nor the initial or ongoing review or monitoring of the reader's individual investment portfolio or individual particular needs. Therefore, no reader should assume that the Publisher serves as a substitute for individual personalized advice from a licensed financial professional of the reader's choosing. The decision to trade and the method of trading is for the reader alone to decide. The reader maintains absolute discretion as to whether or not to follow any portion of our content. Publisher does not offer or provide any implementation services, nor does it offer or provide initial or ongoing individual personalized advice. It remains the reader's exclusive responsibility to review and evaluate the content and to determine whether to accept or reject any strategy and to correspondingly determine whether any such strategy is appropriate for a reader's individual situation. Publisher expresses no opinion as to whether any of strategy contained on this publication is appropriate for a reader's individual situation. The author and publisher expressly disclaim all and any liability to any person, whether the purchase of this publication or not, in respect of anything and of the consequences of any thing done or omitted to be done by any such person in reliance, whether whole or partial, upon the whole or any part of the contents of this publication. Neither Algobot Pte Limited nor its officers, employees and agents, will be liable for any loss or damage incurred by any person directly or indirectly November 7th 2019A publication of Algobot Pte Ltd CRN201604500D. Copyright © 2019

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as a result of reliance on the information contained in this publication. The information contained in this newsletter is copyright and for the sole use of trial and prepaid readers. It cannot be circulated to other readers without the permission of the publisher. Each issue now incorporates fingerprint protection that enables us to track the original source of pirate copies. If we find that you are redistributing the newsletter then, at our discretion, we will reduce the length of your paid subscription by the value of the multiple copies we believe you are circulating. Share with nine friends, and we cut your subscription period by 90%. Contributed materials reflect the personal opinion of the authors and are not necessarily those of the publisher. Articles accurately reflect the personal views of the authors. Stocks held by the authors are marked* and are not to be taken as a trading recommendation. This is not a newsletter of stock tips. Case study trades are notional and analysed in real time on a weekly basis. Any past investment-related performance .referred to may not be indicative of future results, and therefore, no reader should assume that the future performance of any specific investment, investment strategy will be suitable or profitable for a reader's portfolio, or equal historical or anticipated performance level(s). Algobot Pte Ltd does not receive any benefit or fee from any of the stocks reviewed in the newsletter. Algobot Pte Ltd is an independent international financial education organization and research is supported by subscription fees. Please note that in the interest of timely publication of the newsletter, this document may be incompletely proofed.OFFICES; Algobot Pte Ltd Head Office, 20 Cecil Street,#20-01 Equity Plaza, Singapore 049705, Singapore, 22 Hibernia Crescent, Brinkin, Darwin, Australia, Room B105-A17, No.14, Chaoyangmen Nandajie, Chaoyang District, Beijing, China.

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