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Rudyard Kipling’s poem “If”, which Gann quoted in his romantic novel Tunnel Thru The Air, starts with the line “If you can keep your head when all about you are losing theirs…”
This quote is what separates the professional traders from the punters. If you can keep your head, especially when many others in the financial world seem to be losing theirs, you will have a chance to make some really good profits.
Several weeks ago I wrote about a short trade setup on the US Dollar / Japanese Yen currency pair (FXUSJY in ProfitSource), using a combination of Elliott Wave and Gann Analysis techniques. This trade was triggered on September 1st, but could have been entered as early as August 19 using a swing chart entry.
Since this top came in, the market has moved down around 700 points, with lots of volatility in the meantime. There were excellent profits to be made by those who managed to keep their heads during this period.
This current move on the Dollar / Yen has played out just like any other move in any other market. It has had some rallies on “good news” that might have put a scare in a new trader, but the rallies were always ending in double tops or lower tops – nothing to convince a trader that the move had ended.
I’m going to walk you through this section of the market using the WalkThru mode in ProfitSource. This allows you to step through a market one day, or one week at a time, and is a great way to watch a market unfold.
In Chart 1 below, we can see that the Dollar fell sharply at first, but then came back strongly to have “one last crack” at the top. It failed, giving us our first lower swing top. It then repeated the first range down almost exactly.
Chart 1
click to enlarge
After this move, the market then retraced 50% of the run-down. Most traders would have heard of Gann’s famous quote from his book “How to Make Profits in Commodities”, regarding the 50% rule. He says, “You can make a fortune by following this one rule alone.” Chart 2 below shows the 50% retracement, followed by an inside day.
Chart 2
click to enlarge
The market then fell again, repeating just over 100% of the previous down range again. It then formed a double bottom, just above 50% retracement level of the previous bull market range, as shown in Chart 3 below.
Chart 3
click to enlarge
From here, the market rallied, retracing 62.5% of the entire down move, before double topping on the 50% point of the down move. And if that’s not enough, the double top in Chart 4 below also formed on 50% of the current swing range at the time.
Chart 4
click to enlarge
When you think back on all the emotion and volatility of the past weeks, it’s interesting to see the harmony in the market, especially when you consider that Gann wrote about his 50% rule over 65 years ago.
If you are interested in learning more about Price Forecasting, David Bowden does a fantastic lesson using the Swiss Franc as an example in the Definitive Master Forecasting Course.
At time of writing, the market has made a temporary triple bottom with the 103.55 lows, but I think this move has a little bit left in it. I’m watching around 101.50, and expect a low to form early next week.
As always, I’d encourage all students to recreate these examples in your software.
Be Prepared!
Mathew Barnes
Trading Tutor
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