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Bombardier B Shares and the Red/Green Trading Strategy

10/04/02 02:45:55 PM
by Koos van der Merwe

Another look at a trading methodology based on historical highs and lows.

Security:   BBD.B-T
Position:   Sell

I have had quite a number of e-mails regarding the Red/Green strategy, see "The Red/Green Trading Strategy", and its success in trading the market. Most of the writers were concerned with the moving average trigger that signaled an exit from a position. My answer was that the trigger can vary depending on the stock/commodity/index you look at. In the chart below, I have left it out completely.

The chart below is of Bombardier, a company on the Toronto Stock Exchange that has been in the news lately. It has been hammered by just about all of the fundamental analysts eager to make a name for themselves in these days of corporate flagellation. The chart below shows that the Bombardier gave a short sell signal on May 27, 2002, and stayed short until July 18 when it broke above the gray line (low of ten days ago). It gave a BUY signal by breaking above the green line (10 day high) and closed out the long position for a loss on August 6th by breaking below the gray line. On the 8th of August it went short again and has stayed short ever since.

Now if you look at the chart, you will see that I have left out a moving average trigger to close out a position. In its place I have used the LOW of ten days ago (gray line) as my SELL trigger for both a long and short position. I have done this because the share was too volatile and would have broken the moving average far too often. So you see, the moving average trigger is not a fixed part of the strategy, but the HIGH and LOW of ten days ago and the LOW of six days ago never change.

Applying the RED/GREEN strategy to Bombardier.
Graphic provided by: AdvancedGET.
Your "close out trigger" must be a strategy to suit your personality and the stock/commodity/index you are analyzing. Whether it is a stop-loss technique, moving average or any other indicator, use one you are comfortable with as long as it allows you to realize profits and exit the market favorably.

At the moment, Bombardier is still short. It rose to test the "short trigger" (red line) which could have been an early warning exit position, but continued on down. The stochastic oscillator I used was very oversold, and suggesting a possible future buy in the offing, but at the moment I will wait for a break above the 10-day low (gray line) before I close out the short position. At the moment the market is very volatile with the impending on-off war scenario, and I could exit and take profits sooner.

Have a good one.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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Date: 10/05/02Rank: 5Comment: 
Date: 11/29/02Rank: 4Comment: This was definitely a helpful clarification to Jacob Singer s Red/Green Trading Strategy. His articles are very informative, and I hope that he continues to write for this site.

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