Bursa Malaysia T+7, Contra-play And Technical Break-out

Bursa Malaysia to allow T + 7 day settlement. Well, this is really a good news for contra players! You'll get longer "holding power", more days before you make the payment.

If you are a contra player with technical based trading - especially when you buy on the technical break-out (resistance line's break-out, median line's breakout or bullish candlesticks pattern, etc) or reversal signal (candlestick's hanging man, hammer etc), many time after the break-out, there will be 1 to 3 days of profit-taking* activities (you can expect that after a good one day gain) and because of this you just can't 'make it' within the T+3 settlement period. Allowing more days will shake-off the seller (bear) and you can wait for the counter to move before selling.

Normally we can expect immediate (next few days) follow through when there's a technical breakout. But then many time, there's no immediate follow through . Sometime there's a profit-taking* (black bar) on the next day after you just bought a stock, sometime it just stalling**. After 3 days, as a contra player, you are forced to sell (of course, unless you make the payment, but that's not the purpose of contra play). Its just too short 'time allowance' for a breakout stock. Through my experience, this could backfire, giving you a contra-loss after a contra-loss, especially when it's a volume-less market.

*Provided the profit-taking activities doesn't depress the price down too much (as long as it doesn't violated your stop loss). The seller normally those that been holding the counter for some time and they just couldn't wait to sell when suddenly the stock gains.
**When there is a breakout, its attract buyer, and the next day there a clash between seller and buyer causing the stock to move sideway.

Allowing more days (there's extra 4 days compared to current standard 3) suit the 3-7 days typical market cycle better, I believe so. A good move by Bursa Malaysia in encouraging more participant. Retail investor should embrace this facility. Not every stockbroker gives this facility yet, you have to check with your remiser.

Read the the news: The Star T+7 rule will spur contra-trading activity

Note:
T+7 = transaction date plus seven trading days
In contra trading, the trader does not pay for the full cost of the shares. Instead, he pays for the loss or receives the profit from the trade.