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TRADE PLAN

Final Requirement
Presented to the Faculty of College of Arts and Science Education
University of Mindanao
Matina, Davao City

For ACC 212 (Financial Markets)

4:30 to 5:30 pm class
2nd Term, 1st Semester, SY 2021–2022

Arienza, Joshua Moen M.

Baugbog, Stella Marie M.
Cordova, Lorie Mhaey Q.
Dusong, Danica Gaille D.
Lagumbay, Elaine Joy L.
Millian, Rica Jane
Paloso, Recca Ella M.
Pascual, Jesiah N.
Sato, Joy-ana Marie C.
Torrefranca, Ma. Daneille B.
GROUP E

December 2021
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Table of Contents

Introduction…………………………………………………………………….........3

A. Technical Indicators...…………………………………………………….….….3

B. Time Frame……………………………………………………………………....4

C. Entry / Buy Point………………………………………………………………....5

D. Exit / Sell Point…………………………………………………………………...6

E. Risk and Reward Management………………………………………………....7

F. Presentation of the Actual Chart…………………………………………….….8

G. Things to do Before Trading...………………………………………………...10

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Introduction

Success in every situation necessitates planning. In the world of trading,

no one wants to reap losses. However, one cannot determine the market's
movement because everything is unpredictable. To be on the winning side, one
has to plan and plot every possible eventuality that helps them execute the
proper actions that constitute the right decisions in closing a trade. Moreover,
because of its uncertainty, the profitability or not, of their past trade transactions
has no impact on how they must handle their current position. To succeed in
trading, one must supplement itself with self-discipline, knowledge, and focus.

Along with these thoughts, the following information aims to give a

complete examination and understanding of the trading strategy adopted.

A. Technical Indicators

As per the technical indicators, we followed the MAMA trade strategy,

which comprises the two indicators: Moving Average Convergence Divergence
(MACD) and Arnaud Legoux Moving Average (ALMA). Before we get there, let
us define and know how these two works.

Moving Average Convergence Divergence (MACD)

MACD is one of the most commonly used technical analysis indicators.

A trend-following momentum indicator shows the relationship between two
moving averages of a security's price. It helps the traders detect when the
recent momentum in a stock's price may signal a change in its underlying trend.
Mostly, traders use MACD to identify when bullish or bearish momentum is high
to identify entry and exit points for trades. When the blue line crosses over the
red line, the trend is a longer-term uptrend (bullish).

Conversely, when the signal line crosses over the MACD line, it signifies
a longer-term downtrend (bearish). These technical signals are triggered
because of MACD as it travels over the signal line, which suggests a buying,
whereas when the MACD crosses underneath the signal line, it indicates that
may be the time to sell. Above all, MACD is a technical indicator tool utilized to
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recognize moving averages that demonstrate a new trend, whether it is bullish

or bearish—as in trading, finding a new direction/trend could be a must since
that is where the most money is made.

Arnaud Legoux Moving Average (ALMA)

The Arnaud Legoux Moving Average (ALMA) is an excellent moving

average indicator that surpasses all others in terms of smoothness and
responsiveness as it claims to bring a balance to the indicator's responsiveness
to price while also being smooth, a feature that has so far eluded most other
types of moving averages. With moving averages being one of the most critical
indicators in trend following, the ALMA is a technical indicator that can
determine the market's trend, direction, reversals, breakouts, and
support/resistance levels. It uses moving average twice, first from left to right
and again from right to left, in both directions. A reversal or breakout is likely
when the price and the indicator move upwards, and the asset's price rises
above the Arnaud Legoux line, so when the price and the indicator's line fall
below the ALMA, we may expect the trend to reverse and quickly move
upwards.

MAMA Strategy

The strategy we used is termed MAMA as it comprises MAcd and alMA,

and here is how we do it. Traders buy aggressively where the candle breaks
the ALMA while the blue MACD line crosses over and above the red signal line
(Bullish Crossover). Therefore, after the buying, the exit or selling time is still
where the candle breaks the ALMA underneath and stays there. Using MACD
with ALMA gives two indicators screaming that it is time to buy, and it helps
avoid significant losses.

B. Time Frame

A trader who is new to the market has a number of questions considering

that entering this type of market environment demands courage due to the risk
and the amount of time it takes to develop a plan for deciding when to buy and
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sell a stock. Thus, time management is essential to allow a trader to invest his
time to create a time frame that must be used to trade stocks. To delve deeper,
a trader commonly uses different types of time frames, which may either be
minutes, hours, days, weeks, or as long as the trader is watching the value of
stock in the market.

As we study the flow of the value of stocks in the market, we managed

to choose a time frame that is suitable enough to make a trade which is the
daily time frame, wherein this basis helps us to make a trade daily and allows
us to hold the stock within a day where we happen to observe the changes that
occur during this period. Then, we may wait until the end of the day and when
the market is close to decide whether to stick, to buy more, or to sell the stocks.
However, if we find the value of a stock is consistently going downward, we
must immediately take action because we might incur a huge loss that leads to
a problem. Therefore, it is essential to choose a time frame that will essentially
help the trader for him/her to be ready for the possible challenges that might
occur during the time of trading.

C. Entry / Buy Point

The price at which an investor purchases security is the purchase or

entry point, widely used as part of a trading strategy to lower investment risk
and eliminate emotion from trading decisions. A strong entry point is often the
first step toward a successful trade. A buy point is also a price level above which
stock is most likely to begin going higher. Also, in trading, we should never
forget that the greater the demand for stocks, the lower the price. To quickly
determine the buying point, we must first look for our support and resistance as
it will help us know the area of our buying point. People tend to buy or sell since
support and resistance are the candles. After plotting the support and
resistance, we will employ the two indicators such as Moving Average
Convergence Divergence (MACD) and Arnaud Legoux Moving Average
(ALMA), which aided us in figuring out when the optimum time to enter or to
buy.
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As you can see MACD, has two lines, the MACD line itself and the signal
line. We can identify where to draw our buying point because we have to look
for crossing the MACD line to the signal line. While in ALMA, since it is so
responsive to the price movement, we will use it as an additional signal to
choose our purchase position. The crossing of the signal line and the MACD
indicator occurs in the lower part of the charts, the MACD indicator window,
while the ALMA is on the top window. Furthermore, as an investor, we should
ensure that future economic benefits will flow, in addition to purchasing a stock
at a low price. Hence, our buying point is when the MACD line is about to go
over the signal line because once they crossover, and it means that the value
of the particular stock will increase as time passes by generating more
significant income for buying at a low price. While in Alma is when the ALMA
line is above the green candles.

Moreover, when you have already determined the best buying point, you
can now buy the stocks at that price, play with your trades, and wait and monitor
it until you see another signal line to sell them.

D. Exit / Sell Point

An "exit point" is the price level where an investor should close out an
existing trade. An investor would often sell to exit their investment while
purchasing long-term assets. An exit strategy helps measure success and
provides a timeline for assessing outcomes. Exit strategies are also necessary
for private firms; however, it is more challenging to implement because the
seller of the shares must find a market. Still, having an exit strategy is the best
way to exit the stock market because it is essential for managing your account
since it allows you to take profits and stop losses. Unless you are an aggressive
trader or a passive investor, exit strategies are crucial.

Locating the optimal time to close or exit a trade, we must look for an
indicator that will fit our strategy for identifying probable exit points. We agreed
to apply the MAMA trading strategy, a solid indication to buy stocks. We buy
stocks when the candle breaks ALMA and at the same time when the blue line
of MACD crosses above the red line, which is known as a bullish crossover.
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After buying stocks, the signal to exit or sell remains the same when the candle
breaks the ALMA down and stays where it is. On the other hand, a breakdown
of ALMA is an indication to sell the security when the red and blue lines cross
again, and the red line crosses above the blue line.

MAMA is also referred to as a complementary conviction. Using MACD

with ALMA shows us when it is optimal to buy and sell securities, plus it protects
us from being faked out. Moreover, the exit requirements of the MAMA strategy
must be understood and followed. It occurs when the price gap-up is at the 5-
minute time frame, the price rally is at the 15-minute time frame, the market is
in a downtrend at the 1-hour time frame, normal price movement/normal market
condition is at the 4-hour time frame, and the bullish market condition is at the
1-day time frame. So, when the candle breaks the ALMA, we must either reduce
our losses or save our gains.

Furthermore, an exit strategy for investors and traders establishes the

time they must sell an asset based on its performance. The trader/investor will
have previously determined when they will sell the asset for a profit and sell it
for a loss. The safest method is to exit after a failed breakout or breakdown,
take the profit or loss, and if the price exceeds the breakout or breakdown high
or low, you may re-enter. A re-entry is understandable since this return
suggests that the setback has been resolved and that the underlying pattern
can proceed. After a failure, the price is more likely to swing to the other side of
the trading range and establish a significant trend oppositely.

E. Risk and Reward Management

From a professional view, the market strategies find approximately 1:3

an ideal risk and reward ratio for their investments. This indicates three units to
be an expected return to every unit of the additional risk. However, as students,
we are still learning the strategies of getting the best risk/reward ratio when
trading. Indeed, finding a good risk/reward ratio is not simple because traders
adapt depending on their experience; we suggest trial and error - of course with
a good strategy - so that we will not incur huge losses when trading in the
market. Besides, trading is at high risk when you do not know how it works.
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Some advance traders would usually apply a lower risk/reward ratio as they
believe it is playing safe; however, others consider that a risk/reward ratio that
is greater than 1:3 is much better to prove their potential profit in the long term.

Based on our learnings in the trading strategy, we will use a risk/reward

ratio on where we should cut our losses and take profit depending on how many
percent gain, we will get. Along with what is termed as a 2% rule in investing
strategy wherein investors should never risk more than 2% of the availability of
their capital in the trading; thus, we came up with a 2:5 risk/reward ratio. This
implies that we will risk 2% of our stock, taking the 5% profit, known as expected
return. 80% of our stock will reduce, and we will take 20% of it; however, that
remains a strategy because it will always depend on the stock and its
movement. Above all, 2:5 is still not bad because it is also better to have a
higher risk to get a higher return, even though it will reduce 80% of our stock.
This strategy will help us improve our trading skills and foresee this ratio if we
profit more than 20%.

F. Presentation of the Actual Chart

Figure 1. JFC Stock using 1-day time frame

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Figure 2. JFC Stock using ALMA and MACD indicators (Entry/Buy Signal)

Figure 3. JFC Stock using ALMA and MACD indicators (Exit/Sell Signal)
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Figure 4. JFC Stock with Risk and Reward Management

E. Rules Before Trading

As trading continually rises as it recently gained more popularity among

new traders, several news and articles have come forth to us; however, most
of us remained ignorant with it. Nonetheless, as we tackled and experienced
trading firsthand, we learned how one might become a successful and profitable
trader; therefore, we have come up with a list of necessary things that a trader
must follow and remember before entering a trade.

• No plan, No trade
Do not ride along with the hype unless you have established an
entry, exit, target, and risk plan.

• Follow the plan

A trade plan is a crucial aspect of trading, and it has a reason why
it stayed and is valued by traders. Many traders fail to succeed as they
tend to swerve away from their original plan when their trading goes
differently as planned.
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• Be patient
Discipline and Self-control is deeply valued in trading since it
prevents you from making abrupt and impulsive trading.

• Always check the market

• Do not allow your ego to do the trading.

One must be mentally prepared to trade as emotions often cloud
a trader’s judgment. As emotions cloud a trader’s prejudice, this may
lead to a trader’s failure in succeeding. As they keep pushing that they
are right despite being contradictory to the market, the more losses they
may incur.

• Do not obsess over stocks you no longer possess.

• Know your limitations and only take risks with money you can afford to
lose.
Remember that one must only risk what he is capable of risking.
Although the stock market has a lot of opportunities to offer, the risk
remains to be high. Also, it is important to use a stop loss and know when
to stop trading.

• Do self-research and continue to learn about trading.

Trading requires traders who seek to learn continuously. Do
research about the market and the stocks you are planning to buy since
the company’s condition impacts the stock.

• Trust yourself and enjoy the trading process

Trading is composed of gains and losses. Do not lose trust when
you encounter losses; instead, take losses as a form of lesson and gains.