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When you first decided to start trading the financial markets, were you thinking, “I want to be able to forecast so I can impress my friends”, or did you think “I want to make money and be financially free”?
While the idea of forecasting is alluring, the vast majority of us got into trading in order to increase, or replace, our income. With this in mind, let’s take a look at the past two months of market action on the Euro (EC-SpotV in ProfitSource).
Regular readers of the Trading Tutors Newsletter will remember an article I wrote on Signal Tops and Bottoms, showing the Euro top in November 2007. The forecast was for November 26th, a Monday, but the top came in on Friday November 23rd. The Reversal Bar on the Friday was our signal for entry. It came a day early, but we need to be prepared and trade what we see. More information on Signal Tops and Bottoms can be found in the Ultimate Gann Course manual.
Once the reversal bar confirms our forecast, we look to use swing charts to try and take as much from the move as we can. Platinum Traders who read my last Platinum article will know that the next two dates I was watching after this top were December 21 and January 15. December 21 is approximately one month from November 23, so it was not unreasonable to expect the market to run down into this date.
Chart 1 below shows that the market did this in two almost equal moves.
Chart 1
click chart for more detail
By combining 2 day swing charts with some simple time analysis, this was a fairly straight forward move to trade. You could either hold your trade for the full move down from top to bottom, or you could look to trade the two smaller moves, as shown by the arrows. Many of our Safety in the Market students would recognise the reversal pattern we saw on December 20/21. This pattern, on an important price pressure level, and on a time pressure date, was enough reason to take profits on short trades.
From here, my analysis of the market was telling me to look for more shorting opportunities. The natural thing to do would be to let the market retrace, and short another lower top. Chart 2 below shows that the market rallied strongly, giving no “down days”, and therefore no reason to enter short trades.
Chart 2
click chart for more detail
It is disappointing to see a number of up days when you are looking for a signal to go short, but that is just part of trading. From a forecasting point of view, I was wrong, as the market was moving up. From a trader’s perspective, I was successful. I had some very nice short profits from the downside move, and because there was no signal to go short, no money was lost on the upside move.
There was an outside reversal day on 31st December, however the overbalance in price coming up from the December low warned us against taking a short position, so we waited for the next pressure date, January 15.
When January 15 came along, the market was at a clear double top, giving a signal reversal day again. It was now time to get short again. Chart 3 below shows the setup.
Chart 3
click chart for more detail
It’s now up to you to use the walk through mode in ProfitSource, and go back over this move day by day, to see how you would have traded it. I have dropped a lot of hints in this article for Safety in the Market students who are willing to do the work, recreate the charts, and apply all their knowledge to these setups.
Be Prepared!
Mathew Barnes
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