Noel
Campbell 		While the SPI200 has been creeping its way forward in this current up leg, we have not been presented with ranges large enough to allow us an entry using ABC trading rules. ABC trading requires you to enter the market within a maximum of 33% of the previous range. When the market is only presenting you with small Reference Ranges the likelihood of being able to enter by 33% is low and hence no trades.

As your experience grows, from time to time you can subjectively step outside some of the boundaries dictated by the generic ABC rules. In action like the current market, a more experienced trader will look for opportunities that allow you to increase your Reference Ranges to permit an entry by the required limit.

In Chart 1 we have the recent market action for the SPI200 presented as a bar chart with a Swing chart overlaid. The market created an outside day on 25 July 2003, which by nature generates an additional Swing on the chart. Studying the bar chart more closely you can see that the market opened lower on the 25th due to overnight market action and then proceeded to rally, essentially for the entire day. This lower bottom was formed more by the response of the night market to the Dow, than a genuine sell off. This presents the ideal situation under which you can ignore the Swing generated by this outside day.

Chart 1

click chart for more detail

By ignoring this Swing you can use the range that extends from the 22 July low (3053) to the 28 July top (3122) as a potential A to B Reference Range. The market sold off for two days from the 28 July top to form a Point C for an ‘Advanced ABC’ trade. By increasing the size of the Reference Range, the 33% entry limit for this trade was 3099, making this a valid entry. Trading Tactics students can refer to the notes in Session 5 for more details on this ‘advanced’ trade.

In speaking with clients about this trade there a number who took advantage of this insight to generate additional trading profits. The key factor that dictates the decision to ignore the outside day Swing in this trade is the relative position of the open and close on the outside day. One beauty of the Trading Tutors Newsletter forum is that we can share with many, the experience of others, for the greater good of everyone’s trading.

Until next week…

Noel Campbell