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Gold has been in the headlines recently, after taking out last years highs and pushing on past the $800 an ounce mark. Traders can use gold futures to take advantage of these moves. Gold Futures (GC-Spotv in Profitsource) are traded on the New York Mercantile Exchange (NYMEX). The contract specifications can be found at www.nymex.com.
Both David Bowden and WD Gann taught that the real money in trading is to be made with longer term moves. In order to do this, we can’t rely solely on the daily chart for our analysis and trade management. Chart 1 below shows a daily bar chart of the recent market action in gold futures (GC-Spotv), with a 1-day swing chart overlaid.
Chart 1
click chart for more detail
While the swing chart has us trading safely with the trend, we can see that it would have stopped us out well before the move in gold had finished. Even though in this case you would have managed to bank some good profits, it’s always disappointing to see a move continue on a long way after you have exited the trade.
In order to hold on for the long moves, both David and Gann looked at weekly and monthly charts as well. Chart 2 below shows the same daily bar chart as Chart 1 above, however this time with a weekly swing chart overlaid.
Chart 2
click chart for more detail
A swing chart is designed to take some of the noise out of the market. All a weekly swing chart does is filter out even more noise than the daily swing chart, enabling a smoother trade.
There isn’t anything wrong with trading off the daily swing chart, of course. And there’s nothing to stop you from jumping back into the market on the next higher swing bottom after you have been stopped out. The weekly swing chart simply provides a smoother picture, with less noise and less decisions to be made.
I would encourage Safety in the Market students who have attended an Interactive Trading Workshop and studied “the 3 contracts method” to experiment with their trailing stop loss strategies, and develop a trading strategy that suits their personal trading style. Some of us like to watch the market every day, trading every small move up and down. Others prefer to take a trade and check it once a week. The first rule of trading – Know Thyself!
Go back over several years of history on a market and pick out the large moves you would have liked to have profited from. Think about your trading style, and the different ways you could have managed the trade, and work out in hindsight how you could have made the most money. Make notes then go on to the next move.
Once you have studied at least six of these major moves, you will start to see similarities in the notes you have written on each of them, and you will have a good idea of how to make the most money from the next major move in the market.
As David always says, “your hindsight will become your foresight”.
Be Prepared!
Mathew Barnes
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