CBA Trend Follower

CBA is the sector bellwether - the largest bank and the largest company on the ASX, with the deepest options market and tightest spreads. While the other majors offer similar exposure, CBA tends to lead sector moves and can produce powerful extended trends when banking themes like rate cycles and housing demand play out. It is also highly liquid with active derivatives.

Use 20 EMA for short-term trend and entries, 50 EMA for intermediate trend confirmation, and 200 EMA for major trend direction. The 20 EMA is most important for entry timing - enter on pullbacks to rising 20 EMA in confirmed uptrends.

Uptrend is confirmed when: price makes higher highs and higher lows, price is above rising 20 EMA and 50 EMA, MAs are properly aligned (20 > 50 > 200), and ADX is above 25. All conditions should be present for high-confidence trend.

A trailing stop moves in your favor as price moves favorably, locking in profits while allowing the trend to continue. It removes emotion from exit decisions and ensures you capture majority of a trend while protecting gains.

For share trading, A$7,500-37,500 is comfortable for meaningful positions. A CBA LEPO or ETO contract (100 shares) has a notional around A$16,250 and requires roughly A$2,500 margin for a LEPO. Options can be traded for the premium amount only, which lowers the capital outlay.

Trade CBA longs only when the Banks index is in uptrend (above rising MAs, higher lows). CBA correlates 0.90-0.95 with this index. Strongest CBA trends occur when the sector supports the direction. Avoid CBA longs when the sector is breaking down.

Pullback entry waits for price to retrace to support (20 EMA) in confirmed uptrend - offers better price but may not trigger. Breakout entry buys above recent swing high - confirms momentum but at higher price. Pullback entry typically offers better risk-reward.

Expect 3-5% pullbacks in strong trends. Check: Is volume low (healthy)? Is price holding key support (20 EMA, swing low)? If yes, hold position. Review your stop level, not price. Pullbacks to 20 EMA are opportunities to add, not exit.

Calculate: Position Size = Risk Amount / Stop Distance. Risk 1-2% of capital per trade. Also limit position to 10% of portfolio value. Example: A$1,25,000 capital, 2% risk = A$2,500. Stop A$5 away. Position = 500 shares (but check against 10% portfolio limit).

Primary exit: When trailing stop (below swing lows) is hit. Secondary: Close below 20 EMA. Confirmation: ADX falling below 20. Don't exit on emotion or minor pullbacks. Let the system work - trend following accepts giving back some profit from highs.

Use ADX and MA analysis. ADX > 25 with MAs spreading = trending regime (full activity). ADX < 20 with MAs converging = ranging regime (reduce activity). Also monitor ATR - expanding volatility supports trends. CBA trends best during clear banking-sector themes.

Score factors: Trend direction (3 pts: price > 20 EMA, 20 > 50 EMA, 50 > 200 EMA), Strength (2 pts: ADX > 25, ADX rising), Pullback quality (2 pts: near 20 EMA, RSI 40-60), Sector (2 pts: Banks index uptrend, CBA outperforming). Enter at 6+/9.

For trend following, use ITM or ATM calls (or LEPOs) with 1-3 month expiry. This provides leverage with reasonable theta decay. Bull call spreads reduce cost but cap upside. Roll positions before expiry to maintain exposure. ITM options and LEPOs have higher delta for better trend tracking.

Single stock (CBA): Maximum 10% of portfolio. Banking sector: Maximum 15%. Total financials exposure: Maximum 30%. Total portfolio heat (all position risks): Maximum 15%. These limits ensure survival even if the banking sector reverses sharply.

Document: Weekly trend direction, daily entry rules (20 EMA pullback + 6/9 score), position sizing (1-2% risk), exit rules (trail below swing lows), risk limits. Journal every trade. Review weekly. Track win rate (target 45%+) and profit factor (target 1.5+). Backtest changes before implementing.