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Rising Coppock = opportunity; falling Coppock = risk

June 22, 2022

If we look at the chart of ServiceNow above, a technology company with exciting fundamentals which is classic 3G (great story, great growth, great chart – long term), we can see that the Coppock buy and sell signals, marked in blue and red respectively would have been very helpful. You could just use Coppock to decide when to be in and when to be out of this stock.

However you can also add an extra level of sophistication with my two out of three ain’t bad signals which in most cases will be a broken trend line and a change in direction by the moving averages I use. But we still want to respect Coppock. The idea here is that we are on the alert to buy when Coppock is or looks like rising and on the alert to sell when Coppock is or looks like falling.

In this strategy we buy when the price breaks up through a falling blue line and sell when it falls below a rising red line. The moving averages almost invariably change direction at the same time so they act to provide confirmation. Confidence then comes from holding and even adding while all the indicators are rising and being out when all the indicators are falling as is the case for ServiceNow and many other shares currently.

An exception to this general rule came in the recent period when ServiceNow shares gave a clear two out of three ain’t bad buy signal in June 2021 against the background of a falling Coppock. It would have been OK to act on this signal on the understanding that the shares were at risk and we should be looking for a sell signal to exit which duly came at a higher price in December 2021.

There probably would not have been a lot of gain from this strategy by the time the price moves had been sufficient to make you sure enough to do it so the general principle of looking to buy when Coppock is rising and sell when Coppock is falling is going to be the way to go most of the time.

The huge advantage of the more conservative strategy, the bias to being in when Coppock is rising and out when Coppock is falling is the comfort it gives for pursuing a five times leveraged spread betting strategy. The amplification of your gains and the opportunity to reinvest those gains into more purchases in a rising market is so great that losing out on some of the price movement in the shares is a sacrifice well worth making.

Strategy

My hope is that all my subscribers will open a spread betting account with IG and put a reasonable but modest sum into the account, say £5,000. This is enough to buy £25,000 worth of shares. If we invest around the minimum amount in each share we buy, say aiming for around £1,500 per holding, we can build a reasonably large portfolio, say 15 shares.

It is important that the sum is modest so the greedy little man that lurks inside some us, certainly me it seems, is kept in his place and we treat investing like a game of chess with all our moves determined scientifically and logically.

Even with a small starting investment there is plenty of room for excitement, as and when values start to rise creating additional equity which can be invested in further buy signals. These can be for shares already in the portfolio or new shares to give us an even larger portfolio. The effect of reinvesting rising equity can be dramatic, like compound interest gone mad.

This strategy can be given further impetus if additional funds are added, on strength, to make further purchases on strong buy signals. The ultimate objective is to create as much value as possible before the next round of 2/3S sell signals prompts us to realise our gains. This is a trading strategy so that will definitely happen eventually.

There will be bumps and uncertainties along the way. Shares don’t rise in a straight line but as long as the trend is supported by rising Coppock indicators it should be safe to hang in there. No doubt it won’t be as simple as this makes it sound, stock markets thrive on throwing curve balls at us but I think if we try to be remorselessly logical and scientific in our approach and don’t allow any decisions to be made by our emotional back brains we should do well, maybe very well, maybe spectacularly well.

A final point about doing spectacularly well is that I have noticed that can be powerful sell signal. Whenever I think wow I am doing really well it is invariably a good moment to sell but the hardest thing of all, shades of Isaac Newton, is to do this and then not be tempted back in, frittering away those hard won gains in a market which is on the turn.

This is why it is so exciting to be putting this strategy together at a time when for some many shares and indices Coppock has already been falling for 16 months, in many cases is in negative territory and where the next important signal is going to be buy. Such opportunities are rare so we need to be prepared.

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