This is a monthly chart of the entire price history of the company Unilever (UL). Unilever engages in the manufacture and sale of consumer goods.
Applied to the chart is a log-linear regression channel. This channel helps me better visualize extreme price deviations from the mean. The red line is the mean price, the top blue line is the price that is 2 standard deviations above the mean, and the lower blue line is the price that is 2 standard deviations below the mean. Statistically, there is a 95% chance that the monthly closing price will remain in this channel.
Currently, the channel is showing that the bearish sentiment right now is too extreme and Unilever's stock is trading too low. The price is currently more than 2 standard deviations below the mean. Statistically, price only trades this low less than 2.5% of the time. One can extrapolate that there is at least a 97.5% chance that Unilever's price will go up over time. Obviously, anything can happen, trends can end and companies can decline. However, I only trade based on probability and this stock has a very high probability of going up over the long term.
Check out my post from May about Unilever. I posted this right when Unilever was near its bottom:
I thought I'd post again in case anyone missed my post in May, and because I think price may potentially retest the low or at least consolidate for a few weeks, in which case, it's a good second chance to go long. My strategy has been to swing trade this stock because price so far below the mean carries less downside risk than price far above the mean. I bought back at the May bottom, sold at the end of July and am now starting to accumulate cautiously during the seasonal volatility between mid-August and late October. After October, assuming the price goes up, I'll switch from cautious accumulation to swing trading up until price reaches its mean (mean is actually all the way up at $100), or until the higher time frames print bearish signals, whichever comes first. It may take months to years to reach either one of these triggers so this is a long-term strategy.
(P.S. If you're wondering what I mean by "cautious accumulation", the main thing I'm referring to is buying an asset using cash, and not using margin. A trader should never accumulate or average down using margin. If the price goes down too low while you're accumulating and triggers a margin call it can force you to sell right at the bottom and at a significant loss. Accumulating using cash allows you to just sit and hold the position until the price goes up. Another aspect of cautious accumulation is knowing when to stop buying more. If price gaps down, I don't just blindly add more. I may be forced to exit at a loss and then re-enter when price consolidates. Few people realize that exiting at a loss and re-entering higher can still be profitable. As long as it results in you always shifting money out of losing positions and into winning positions right when they breakout. Traders should always wait for consolidation to add a long position. If you're not waiting until the price is consolidating you are paying an opportunity cost, because you're throwing money at an asset that is falling in price when you could be throwing money at an asset that's ready to breakout.)
Back to the analysis: Here's another interesting chart that makes me view Unilever as a good long-term investment option.
The above chart shows two things: (1) Unilever historically outperforms the broader market (SPY) during the years leading up to and including recessions (see my post linked below for why I believe a more sizable recession is likely coming in the years ahead) (2) the yearly stochastic RSI looks ready to begin oscillating back up, which can provide a tailwind for Unilever to outperform the broader market over the long term.
It's important to keep in mind that these yearly charts take a long time to manifest and are not suitable for trade entry, one needs to time entry using a chart on a lower timeframe. Additionally, even though Unilever may outperform the broader market, if the broader market is declining, Unilever's outperformance could just mean less of a decline, so this relative analysis does not mean the price will go up. I use relative charts more as a hedge to risk, meaning that I'd rather swing trade by using an asset that is likely to outperform the broader market over the long term. The risk of decline is always there for all assets, but I'd rather trade on assets that are shifting from underperforming to overperforming over the time during which I plan to swing trade.
Finally, here's one last chart that shows that further downside risk is probably limited:
Again, this is a monthly chart of Unilever. On the bottom is the indicator "WaveTrend" by @LazyBear. You can see that a buy signal was triggered while the oscillator was overextended to the bottom of its range. Although past data do not guarantee future price action, this type of buy signal is nonetheless quite rare and can lead to lucrative long-term investments.
As @TradingView reminds us: look first, then leap. Do your own charting on this stock and consider if/when investing would work for your strategy and portfolio. As noted above, the best time to accumulate is as the price is consolidating, moving averages are converging, and price starts printing long lower wicks and bullish reversal candlesticks on the timeframe you trade on.
Not a trade recommendation. The stock market always carries risk of loss. Trade at your own risk. Best of luck on your trades!
hi , i wish to thank you for your contribution and all that you do to help your readers . i have started to follow you. can i ask , if you can be my mentor ? also, please can you show me how to draw the channel on a monthly chart with mean and standard deviation. i like this strategy . thank you in advance.
SpyMasterTrades
⋅
@Brivax, Hi there! Thank you. My post linked below shows how to draw this regression channel. While I cannot volunteer to be a mentor, I am happy to continue posting on here and I will continue to try to use easily understandable language in my posts. I will also continue to add content to my post on the 10 Rules for Successful Trading, and can help answer questions in the comment to that post.
Brivax
⋅
@spy_master Thanks. how do you determine the "count" when drawing the channel ?
SpyMasterTrades
⋅
@Brivax, For this particular indicator, you have to manually determine the count.
Brivax
⋅
@spy_master ok. for an instrument like drma what count will you use ? i manually adjust to 14 on weekly chart. planning to scale ou at 0.94 at the top of the channel. please can you if i am doing it right. thanks
SpyMasterTrades
⋅
@Brivax, I would use the count of 37 on the weekly
For this asset, there is not enough data for my liking. I like to trade on assets that have a lot of data. Pearson's score is a bit low too.
What I would do is rather than scale out at the upper channel, I would place a trailing stop loss there. I only ever limit loss, never profit. Traders should stay in for as long as the price is moving higher.
Brivax
⋅
@spy_master sorry i didnt know there is two drma. i was refering to DRMA on the Nasdaq . company name Dermata Therapeutics.
SpyMasterTrades
⋅
@Brivax, While I can see it's consolidating and forming a triangle that could lead to somewhat of a pop, I personally never trade on assets that move in an exponential decay relative to the US dollar as this asset is moving.
SpyMasterTrades
⋅
The regression channel of an asset's entire price action should never be downsloping.
SpyMasterTrades
⋅
I should note that trading on an asset that is moving in exponential decay to the dollar over time, is exactly like playing on a slot machine expecting to hit the jackpot. Can it happen? Certainly, but generally the payouts on slot machines move in exponential decay over time relative to the initial amount of money you gamed on. Your goal should be to only trade on assets that move in a logistic function relative to the US dollar over time.