On September 28, 2023, while reviewing the Hang Seng Index – the major stock market index representing the pulse of Hong Kong’s equity market – I encountered a fascinating trading opportunity using the Base Trend (BT) Trading Strategy.
The backdrop was set: Hang Seng, the barometer of Hong Kong’s economic health, stood at 17465.50. At first glance, things seemed as normal as any other trading day. But a deeper look into our GATS indicators revealed otherwise.
The first tell-tale sign came from the color-coded EMA Zones. These zones are paramount in understanding the market’s current disposition, often hinting at its future direction. The EMA’s were painting a bearish narrative. Specifically, the salmon-shaded Trend Reassessment Zone EMAs (ranging from EMA 90 to EMA 140) were positioned above the Light Coral EMAs (EMA 51 to EMA 89) of the Correction Zone. This is a strong indication that the market is potentially overextended and ripe for a correction.
Next came the Global HAS. The once vibrant blue candles that symbolized bullish momentum had darkened into a menacing shade of red. This meant the market was losing its bullish momentum, further supporting our bearish hypothesis.
But the final nail in the bullish coffin was the position of the DAATS. Traditionally, the DAATS situating below the candles indicates a buy signal. This day, however, it stood above, sounding alarm bells for a potential downtrend.
Adding to the bearish choir were the Global Time Bars. The hourly (M60), 4-hourly (M240), and daily (M1440) all glared red, resonating with our overarching bearish theme. The I-Trend was singing the same tune, with its Green Line submerged below the Red Line.
The Global ADX – a pure strength indicator – exceeded 20, suggesting that this wasn’t just a fleeting trend. The strong potential downtrend was gaining steam. Then, the GMACD, with its Fast Length at 6, Slow Length at 9, and Signal Length at 3, reaffirmed our earlier findings. Every aspect of the GMACD – Signal, Main Trend, and Major Trend Indicator – was decisively pointing south.
All these conditions formed a perfect storm for a short trade. Without hesitation, the GATS sprang into action, placing a sell trade on the Hang Seng Index. For risk management purposes, the GATS allocated 2% of the capital for this trade. To protect against unforeseen market spikes, an Adaptive ATR Trailing Stop was set. Calculated at 12 times the M60 ATR over a period of 40, the stop was initially positioned at a safe distance from our entry.
Having a 3:1 Reward-to-Risk Ratio as the north star, the profit target was set ambitiously at 15505.2.
Fast forward to the present, the Hang Seng Index stands slightly lower at 17445.50. While the index hasn’t hit our profit target yet, the current ATR adaptive trailing stop has adjusted to 18086, offering a cushion against potential reversals.
Reflecting on this trade, I’m reminded of the importance of a systematic approach in trading. While the future remains uncertain, the precision and discipline of the GATS, combined with the BT Trading Strategy, provide a structured pathway in the chaotic world of financial markets. Whether the Hang Seng hits our profit target or not, the strategy has demonstrated its prowess, and I remain confident in its future potential.
About the Author
Dr. Glen Brown
Dr. Glen Brown is a luminary in the financial realm, boasting an impressive track record spanning over a quarter-century. He proudly helms as the President & CEO of both Global Accountancy Institute, Inc. and Global Financial Engineering, Inc. Under his visionary leadership, these organizations have seamlessly blended the diverse worlds of accountancy, finance, investments, trading, and technological innovation, establishing a distinctive identity as a leading global multi-asset class professional proprietary trading firm.
His academic prowess is evidenced by his Doctor of Philosophy (Ph.D.) in Investments and Finance. But Dr. Brown isn’t just an academician; he is a seasoned practitioner. His vast knowledge encompasses financial accounting, management accounting, finance, investments, strategic management, and risk management. Beyond his executive capacities, he wears multiple hats — as the Chief Financial Engineer, Head of Trading & Investments, Chief Data Scientist, and Senior Lecturer, exemplifying his fervor for both hands-on financial engineering and scholastic contributions.
Yet, what truly sets Dr. Brown apart is his profound philosophical perspective. He profoundly asserts, “We must consume ourselves in order to transform ourselves for our rebirth. We are blessed with subtlety, creative imaginations, and outstanding potential to attain spiritual enlightenment, transformation, and regeneration.” This ethos serves as the compass guiding his relentless drive for innovation, personal evolution, and the quest for unmatched excellence in finance and investments.
In his ongoing journey, Dr. Glen Brown remains committed to nurturing a culture of progressive innovation and triumph at Global Accountancy Institute, Inc. and Global Financial Engineering, Inc., constantly seeking avant-garde solutions to the intricate puzzles of the financial landscape.
The trading analysis provided here represents the personal opinion of the author and should not be considered as financial advice. Trading stocks, forex, commodities, and other financial instruments carry inherent risks, including the potential loss of the principal amount invested. Investors should carefully consider their objectives, financial situation, needs, and level of experience before entering any trade. We strongly recommend seeking advice from an independent financial advisor if you have any doubts or concerns.