The Moving average on these charts are all monthly simple averages:
5mma = Light Blue / 20mma = Green / 50mma = Dark Blue / 200mma = Red
All setups in the growth phase had all the averages rising. The last setup was a bad setup as it was trading against a falling 20mma but it did make money.
The Monthly Roll Over
Since June 2011 there has been no reason to even look at Tesco for a long trade. The 50mma started falling in Feb 2011. When the 20mma joined it in June the game changed to sell the rallies. Tesco has been under distribution for around five years. I remember all the news at the time clear as day. Buy Tesco from all the funds, newspapers and TV programmes. They pumped it for months even after it fell below the 370 area. It then had a move up to its falling 50mma and you will notice it started to have multiple 5% down days. It was hard to miss, there were at least 8 of them. This is how they unload a position. They tell retail to buy it whilst dumping their stock onto poor unsuspecting private investors. Then the waterfall begins. Fall below support, trade sideways to the 5mma then down again and repeat. Around the time it takes out the major multi-year support at the 290 area we start to hear the value guru’s find their voice. They buy it all the way down to the eventual low and usually average down, take on huge risk then sell for a small gain on its first decent rally. When it is no longer being called value by the value guru’s it will usually form a nice base then breakout to new highs. This will be followed by earnings upgrades and the value guru will say it’s fairly priced or expensive and up it goes again.
Tesco’s multi-year rollover
Major Base Breakouts – The Low Risk Entry
Trading a breakout from a base gives you a simple and exact entry with a simple and exact stop area. There’s no maybe this maybe that, maybe my stop was wrong, it’s exact. You are right or you are wrong – leaving no grey area, the art of technical analysis is not to over think a position but to master one’s ability to make the right call. Buying when a price is going up gives you a massive advantage. Waiting to buy a retrace adds doubt to a setup and usually means you will miss all the strongest moves from the best setups, not some of them, all of them. All the strongest breakouts don’t retrace to the entry area. All failed breakouts retrace.
You need to be in the best breakouts full stop.
Good trends usually have about five major bases before rolling over. Late stage bases have more risk than early stage bases. When a stock has already built five bases in its uptrend it increases the chance of failure. The big money is made by entering a stage one base and compounding by adding to winners at new highs.
Tesco Base from 2000 on weekly chart
When is a base a good base?
A base usually takes at least 10 months to a few years to form. You’re looking for major lines in the sand. If it cannot be seen on a monthly chart then it’s not a major base. I use the weekly chart to screen for good bases.
When the market takes out a high, move your stop to the previous low. This is the simplest and the best stop rule for trend following. If the price has traded above a level with no overhead supply there is no reason it should retrace to the bottom of the range again.
I have a rule, don’t let a 1R gain turn into a 1R loss. I like to trail to break even when price trades above 1R (1 x Risk).
After Being Stopped Out
The first and only thing you should do after being stopped out of a trade is remove the stock from your watch list. You did everything right but you got stopped out, the end! Monitoring what it does for weeks after and trying to get back in as you left some money on the table is a complete waste of time that can be better spent looking for the next trade. Whatever the result of the trade, you have traded the sweet spot as good as anyone can and it will take months maybe years to setup again. Move on. It’s called trading, not “the history of trading.”
As I said about Quindell and Gulf Keystone these things take time to recover and build a nice base, maybe years, maybe they never recover. The truth is they had a great run and had late stage bases and in QPP & GKP they had blow-off tops. That’s all history now. When did you ever see a stock have two blow off tops in fast succession?? Me never. Move on!