Royal Bank of Scotland Group: Buyers Gain Upper Hands

PUBLISHED: Aug 01 2012 @ 03:56 | Comments (0) | More info about Azeez Mustapha

This company stock (LSE:RBS) is currently at a turning point (a rally to be precise) as would be shown in the technical explanation below. However, the overall trend in this year has been largely southward. The stock had been falling before the rally that happened in late July 2012 began. Seeing this, institutional traders could have hedged their long positions with short orders as well. Hedging is not a popular trading method among private traders, it is something used exclusively by Smart Money, though some strategies employed by retail traders use buying and selling similar instruments. The price is satisfactorily liquid (Liquidity explained as being able to open orders and smooth them whenever you prefer).

Technical Forecast
Looking at the chart, from a high of up to 393.3, the price began to come down in March 2012. That was the beginning of this year’s bear market on this stock. The bearish dive did not occur continually without some occasional bullish retracements in the price on the way down. One retracement happened on April 27 and another noteworthy one took place from June 6 to June 18, 2012. This is a price action that has been favorable to swing traders who were bullish on a near-term basis.

Technically, the EMA period 21 period has shown a vivid confirmation of the primary trend on the company’s stock: Bearish. Something interesting is, however, happening on the Stochastic Oscillator period 14. The Stochastic reached the extremely overbought level of 0 more than a few times during the recent southward journey of the stock. Then on July 25, 2012, the price rose from a low of 195, resulting in serious bombardments of the bears. The price crossed the EMA to the upside last week; thus confirming this correction.

We need to note that at this time, the Stochastic has reached the extremely overbought level at 100 and is heading down. This is something that is normal and expected to be temporary. It shows the reason why July 31 was a bearish day. The price was at 213.7 when this article was being written. Buyers could experience some challenges at the supply territories at 214.00 and 214.50, but the support levels at 213.00 and 212.50 should do a good job holding the price. The price should rally after an over-extended bear market.

This is something that has already been factored in; and this is unlike futuristic neo-Orwellian ideology. Prices trend upwards when bulls go long and plummet when bears short the markets. The ambitions of a myriad of bulls and bears cannot be fathomed, whereas it is safe to say that they aim to realize some returns while putting some check on risk. Therefore, millions of orders that are being opened would have profound impacts on the markets, whether upwards or downwards, as the masses take actions based on emotions.

Conclusion: For this stock, it is okay to elect one winning trading formula. Considering the price movement on the chart, whether as a line chart or a candlestick chart, we do well by determining the overall bias of the market instead of coming up with some ideas that contradict realities. This prevents your trading approach from being complicated and running the risk of getting out of touch with realities. Nevertheless, you would also be prevented from using too many strategies on one portfolio, thinking that one strategy is ineffectual because of a transient losing streak.

This article is ended with a quote from one of the well-known trading psychologists:

“Do you have a trading plan and are you following through on it? Do you have trading rules? Are you practicing appropriate money management and position sizing? When you have losses or experience other disappointments, are you able to accept the reality and move on, or do you wallow in self-pity, sadness, and anger? Are you following the market? Or, do you wish, hope, pray, and otherwise try to make the market go where you want it to go? Are you journaling? Are you logging your trades?” – Dr. Woody Johnson

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