ALSI 40 Index - Trading the South African All Share Index

Hi All:

I have been trading the ALSI 40 (The South African All Share Index) for some time and would like to share a little of what I have been up to as well as invite input around this cunning yet rewarding 'little' index.

I'll kick off by giving anyone actually reading this an overview of the chart itself, why for me its been a moderate success and a few of my own observations and insights gained over the last several months.

This is by no means exhaustive, but its my take on the instrument.
The index is made up of the top 40 South African companies by market capitalisation. What I find particularly exciting is it comprises a blend of well-resourced, frequently internationally recognised brands, in pretty much all the exciting arenas. There is SAB (Peroni/Millers anyone?), Billiton (Minerals), Anglo (Diamonds), Richemont (Luxury goods/Cartier etc) and Sasol (the first company to turn Coal into Oil). This makes it comparatively volatile, as its segments to my mind are made up of industry sectors which do move and are frequently sensitive to political/geographic/fundamental influences.

So what?
The question you are likely to be asking at his point is obvious. So what. By a simple process of logical deduction, the team that I trade with are constantly scanning the market for high Average Daily Range charts. We take a number of variables into consideration (which I won't drill into too much right now) the most important initially being how much does this chart actually move on average every day. By proxy, if I want 30 pips/points/ticks per day as a target, its unlikely a chart like NZDCAD is going to give this to me as its moving an average of less than 100 a day at the moment.

The ALSI moves by as much as 1,000 ticks a day. It suggests my odds of hitting a reasonable target with an opportunity of 1,000 vs 100 is better with chart 1 right?

I am based here in London so the next step was the choice of broker. I may deal with this in a separate post but the South African banking system is ranked/rated very high in terms of security and reliability etc. The short version is to open a non-resident account in SA (all done online) with one of the large banks. Many are affiliated with banks locally in the UK (ABSA/Barclays) so its 'easy'. The reason I suggest this is there are no good European brokers who offer the ALSI as an option, and the one I am aware of (IG) can charge as much as a 30 pip spread. (I am going to refer to the values in pips for purposes of consistency.) In hours trading, the index is open from 8:30 to 17:30 GMT + 2, this does drop to closer to 8 pips but quotes are frequently well off the live price and of course you need fill, which can widen this gap significantly. Going with a local broker can be as competitive as 1 pip per side and a 1 pip fee/cost, making a round trip/spread of only 3 pips. Not bad. Anyone wanting more detail can ping me directly, I don't wish to be accused of promoting a commercial agenda. Remember of course your nominated currency will then be in Rands, meaning you have to out-trade the fluctuations in the rate of exchange with your home currency, but I have had a few instances where a deposit a week ago has grown by several % based purely on the change in the FX rate.

I'll end this post here and begin a new one outlining the more technical elements of the chart.

As aways, questions/comments welcome. And try to play nice.

The basics:
Lets look at the chart. A few things you may notice immediately. 1 - I use a black background. I find its WAY less stressful on my eyes. 2 - I (almost exclusively) use Range Bars. Ask me the reasons and I'll share. But not here as I don't want to get off topic. 3 - This chart moves a LOT! Yes, it does and we like it. 4 - I am using the 'live' contract not an aggregate and the April contract is the H5. The most relevant price in other words.

Oh, thats another great thing about trading an index, the price on the screen SHOULD match the price you get from your broker. No funny business and WAY less stop hunting etc. The feed comes directly from SAFEX, at the Johannesburg Stock Exchange and if you get taken out of a trade by your broker and don't see that price on the chart, get on the phone. Yell.
Day 1:
Monday - 23 Feb '15


Ok so what do we see. The chart opens at 6:30 am here in the UK. Not ideal with it being a bit chilly and wet but with the summer change with daylight saving its a more respectable 7:30 am start. Notice the fairly large gap between friday's close and this morning's open. Well over 300 pips. This is a little unusual but not rare. This is also why I personally don't enter a single trade, ever, ever, ever (ever!) before 7am (9am in SA) to allow the charts to 'catch up' with the overnight moves. For those more technical who may be reading this, I'm going to avoid using excessive trading vernacular, so I can include the widest possible audience. Again, if you want details please PM me.

Next we see I overlay the price with a set of fast and slow Moving Averages. The blue group being the fast and the orange group the slow. Blue group above, its an uptrend, blue group below, we are seeing a downtrend. This is BEAUTIFULLY shown with range bars, something you simply do not get with candle patterns in the same detail.

Not wishing to lose those who may be new to this index, its clear that there are 5 distinct moves delivered today. I use an additional filter which colours my bars in line with the speed of the supporting MA. In simpler terms, if its a green bar its on its way up and if its red its coming down. Yellow/amber is in a ranging/uncertain position and is a good indicator of stasis or change.

5 big moves during trading hours. 300+, 200+, 150+, 350+ and 200+. It would be wildly irresponsible for me to suggest for a moment that you can make the 1,200 pips 'offered' today, thats the opportunity. But its a lot more exciting than 30 pips a day...

A few things you should know!! (the fine print...)
I read someplace that the current contract is funded to well in excess of £3billion so its by no means a small index. BUT!! It isn't particularly liquid and if you are looking to trade this index in epic lot sizes (more on this and their value to come) then you WILL run into slippage. Promise. Ask me and I'll tell ya.

Thats it for now. I am viewing this post as something of a test-case for sharing with the wider trading community in here. My objective is to share my knowledge, provide those interested with a little more detail on HOW I actually trade which has kept me consistently in the black. I have a 'real job' and thats trading. It means I have good days and bad, sometimes am in the mood to wax lyrical (tonight is one of those) and other times when I can't be @rsed. The trading comes first.

Very interesting and informative HedgePiglet.

Looking forward to more posts. Happy trading.

Are you trading full time?

Yes.

Hi HP

Congrats with the new Thread here

I will be around plenty to make sure I dont miss anything

All the best

Rooi

Wednesday the 25th Feb 2015:
Building on my first chart, today was a good day. I have a personal target of 200 pips per day and will be happy with 100.
Simply trading the colour changes would have been sufficient, though I shall spend a little more time dealing with the technical perspective on the trades. I use a fair market value indicator and will trade in the direction indicated. This is shown by the dotted light turquoise line on the chart. As you will see, simply trading away from the point of value yielded profits.
If anyone wants these values from me, please send a message.
I am trying to think of a way to share the live screen with anyone interested, as I update with support and resistance levels constantly and remove these as the day progresses. Dropping my entire days chart with all the markings on it will provide a swift aneurysm.
I marked my first trade with the red arrow, as this was a loser. Not the best way to start an early rise but this is the game we play.
The next trade gave back my loss immediately which I banked as a break even on my account for the morning. The nest two trades gave me 100 pips together, and the next two an additional 80 and 20 so I was done by 11am. As before, I'll keep building up the charts each day with a little more detail on what I do. For anyone curious as to my trade management, I use a simple traders ATR to help the decision.



As you can see, the chart continued to move in line with the point of control and gave up another 200+ pips. Lets hope for more of the same tomorrow.

Hi there

Good to see an ALSI thread. Will be checking in regularly.

All the best

I've hit target for the day, however, price just just smashed through the first significant level of 46,910. If this gets through 46,965 (where it is right this minute) it should be a nice run up. Its right at the 300EMA so the next few minutes will be key...

I have deliberately left my earlier post today unedited, to provide a record of my trade I called before 11:30. Note the time of the post was shortly after 11:30, and I marked this on my chart as the yellow vertical line.

26 Feb 2015:
My first trade was a short, in line with yesterdays high watermark of circa 47,250 becoming resistance. I was fortunate to make my daily target in a single first trade, of 200 pips. I was at my desk when another setup appeared, which I called in my earlier post. To quote, "If this gets through 46,965 it should be a nice run up." - exactly what it did...


To decode the lines I drew, at 11:30 I named the 46,910 as having become an area of high interest, that would either become support or resistance, with the signs pointing towards a break above the 46,965 level being the 'call to action'. As is clear, price broke well through the upper turquoise line, then pulled back TO THE PIP to the lower line at 46,910 and not only that, but testing this level for a second time TO THE PIP before climbing for well over 250 pips. All perfectly in line with the point of control, all within the levels I called. CLEARLY this level became support as I predicted and the MA colour bars showed the trade.

While I was content to bank my target for the day early, we are given more than one opportunity on this chart to draw profits. Interestingly, the chart moved to 100% of its lower ADR level and then right up to 100% of the upper ADR level, again proving astounding in its predictability based on consistent averages. Its MUCH easier to trade a chart that behaves in a predictable way than one that leaves you scratching your head.

I haven't seen any questions or comments so have no way of gauging the value of these screens, but am happy to continue for the moment.

Keep em coming, loving the posts.

How did the ALSI respond to Nene's budget speech by the way? Did you see any drastic movements.

You have my attention.
Two questions:
What is the range bar size that you use?
What you consider epic lot sizes?

Stay well.

I take trade entries on a 2R chart and my setup chart is a 3m chart.
I'll answer your question about trade size by sharing the published values of the ALSI:

ALSI:
The minimum lot size is 1, with a value of ZAR10 = 0.55 ($0.84) a pip. Thats the minimum.
I banked 120 pips this morning, at a lot size of 2, or ZAR R20 per pip, or 1,10 per pip. So a neat little return of 121.00 ($186). I only ended the trade because I had to join a conference with a trading group in Singapore, and I have a policy of NO outside stimulus when I trade.

While some may feel this isn't a remarkable amount, for a bit of fun it pays my mortgage. And its less than my daily target.
I entered the trade where I have drawn the orange cross line (07:59am), then was in it until literally moments before my call (08:59) and you can see the trade would have continued to make me my target for the day with no trouble at all. (BTW, the price at 4,938 shows a clear level of support and is a high reaction zone. Anyone still in this short NOW could be in for a big payout.) You can see the green line I drew at 47,092 went from support to resistance immediately, so I would have been well set to stay in the ride down. I have no way of proving I drew these levels at 06:30am, other than to assure anyone reading this that I did.

I will typically trade UP to 10 lots, as the market depth I see live shows an availability of between 20-100 lots available on either side of my price, meaning I get filled the instant I click the execute button.

Here is the grab of my live market depth screener. You can see that 'around' price there are 44 contracts available left of price and 28 contracts available right of price. So at a level of 10 contracts you shouldn't battle. (Nice to see my fellow traders in green getting into the market! )

At a daily target THIS WEEK (I revise it each Sunday night) of 150 pips a day (my current target, based on an ADR of just over 300 pips) will yield 165 per day ($254). Thats slightly down on last week but thats why we call it a target.

The largest lot size I have ever traded on the ALSI has been 20, and I would typically see 8-12 seconds of time lapse between quote and fill. In this time I might see a 5-10 pip slip or gain, which starts to affect your target values. Hence my position that anything over about 10 lots starts to slide your numbers around a bit and since this is a 'fun' chart for me, I don't see the point in creating anxiety where there is no need.

At 10 lots per trade, at my current targets, this chart earns me 5.53 ($8.52) a pip which makes me 825 ($1,271) a day. I will repeat though, this is my pocket money account at the mo and I only trade around 2-3 lots to pay the basics, the larger returns I do on the heavyweight charts as part of the team. However, in November last year this chart was giving me about 500 pips per day profit which was earning several times more than that, so thats where I put my energies.

ALMI:
The ALMI is almost exactly 10% of the value of the ALSI, so just divide every thing above by 10.

Once my morning target has been hit, I join the 'team' where there are around 8 of us who trade together, this increases our odds of seeing a trade setup well ahead of time with more eyes on the charts, and we then trade the 'heavyweight' charts on FX until the afternoon. This is where the big values are made of course but the point I am making on this thread is one can make a perfectly serviceable daily income just by trading sensibly on the minnows.

Please shout if I missed answering your question?

Thank you for the reply, you answered all the questions I had.

Just one more question, whats the indicator that create the color bars (green, yeallow, red).
Thank you.

Thanks for the information you put forward HP.

The colour bars are based on a simple MA crossover. The hard bit is I have never used MT4 before but am happy to chat in person about the settings I use so you can get something similar. I am fully conversant with the theory, which is applied on eSignal (the platform I use) where I wrote many of the indicators myself, or a team member did.

Again, please shout if anything is unclear. I note that the trade I 'called' earlier at 46,938 was crossed shortly after I had to leave my desk, resulting in a further drop of now well over 500 pips. Thats 500 pips on a single trade without retracement. Such a lovely chart!

I think i have a similar indicator for mt4 but its a histogram version.
Is the indicator based on 3 moving averages?

Hi folks. Please take a look back to my post on the 26th of last month where I identified the level of 46,910 as being key. If you didn't see this post made almost a week ago you might suspect I was involved in witchcraft!

So the chart opened this morning and after yesterdays MENTAL sell off, raced straight up to (you guessed it) level 46,910. You will appreciate that the statistical probability that I could have called out a level with a single pip accuracy almost a week ago is so small as to be negligible, but I did and there it is. Again. This over an index that frequently moves up to 1,000 pips a day, yet we find it returning to values by the pip? And who said we can't use tech analysis to trade?

While I realise the chart still has plenty to give us today, as is frequently the case I am done for the day and about to head off for lunch.

The index opened this morning and the first thing we saw was a pretty natural adjustment for the overnight moves to a higher price, anticipated after the huge bear run. Immediately, whats the first thing we notice? Price tests the magical 46,910 level not once, not twice, but 4 times in the space of less than 20 minutes. Clearly there is no way we are about to see any longs, UNLESS price moves convincingly through this level.
So we are given a short a few minutes later, which I am happy to take and ride, banking a safe 110 pips using a sensible Traders ATR. This is 101 trading. 100 pips. Happy.
We then see price climb quickly up, smash through the previous line of resistance we spotted first thing, giving us a good reason to be looking our for any buy opportunities, if course we now hope this will become support and trade up for a bit. So, I took the next long within all the rules we have been seeing and it gives me a small but relevant +56. On the ATR, I bank another 20 pips and wait. Price tests the previous high again a few minutes later, no need to panic, we earned a small profit for it so must accept if we miss this train. Immediately price falls, and I get back in for the next red arrow (marked) and bank another 80 pips using the ATR. My daily target is only 150 this week, I am now well over 200 and its ok to call it a day.

I have left the ATR on the chart today, something new for you all to look at.

I was thinking, if there is enough interest, I might be willing to host a 'live' trading session one morning IF there are enough of you interested in joining me? If you want to be considered for a place in this, please either send me a PM or reply in here and I'll make a decision based on numbers. The idea would be to share my actual trading screen with all the stuff I look at, I get to explain my analysis based on live, real-market data and you can see it working for yourself. Please do indicate if you are interested though, without sounding indifferent I do trade as part of a pro team and am willing to make my time available to help old and new traders but only on the basis that there is an interest, so please pop your name in a reply or I'll amuse myself elsewhere.

Happy trading all.

Price will now stay bound between 46,865 and 46,760. The moment it breaks should be a good sign of a big move. Lets see...