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The Bigger Picture
When I first started out as a trader, with my Smarter Starter Pack under my belt, there was one thing I conspicuously lacked. That was a view of the bigger picture. I was picking good-looking ABC trades, but I wasn’t looking at them in the context of what was going on in the overall market. Nor was I looking at a broader perspective in the stock I was considering. This caused me to take trades that I should have been avoiding.
When I studied the lessons on Price Forecasting in the Number One Trading Plan and the Interactive Trading Workshop I started to realise what I had been missing. The ability to break a market into sections and identify points of price resistance and support totally transformed my understanding of how the market action was unfolding.
Let’s have a look at some examples. As we know, many stocks made significant lows in the early part of 2009, ending a downward run that had been in place since late 2007. The actual times of the highs and lows in individual stocks varied according to their cycles. For example, ANZ made its high on 15 October 2008 and its low on 12 February 2009. The low came in nicely at the 37.5% level on the Highs Resistance Card from the all-time high. This is good because one of Gann’s rules is that percentages of Highs call future Lows.
Chart 1 – Highs Resistance Card
click chart to enlarge
As you can see from the chart, there was a period of accumulation around 12.00, so that when the upward move began the market had given you plenty of time to be prepared to look for long trades.
The next thing you would want to have your attention on is potential tops. The Weekly Chart is good to look at here, as it gives a clearer perspective. Then in that context you can pick your daily ABC trades.
We look to another of Gann’s rules, which is that percentages of Lows call future Highs. The low of 12 Feb was 11.83. Add 50% to this equals 17.75. The first top after the low came in on 6 Apr at 17.64, just below this important resistance level. This is shown in Chart 2.
Chart 2 – Lows Resistance Card
click chart to enlarge
From this point you might be expecting a pull-back. You might not want to trade it, Remember David’s words in the Smarter Starter Pack that the safest trades are in the direction of the main trend. Depending on the size of the move that you are looking at, you may consider short trades. Alternatively you might simply sit out this period and watch for a set up for the next move to the upside.
Here the Ranges Resistance Card comes into play. You would measure the most recent range, from the 12 Feb low to the 6 Apr top. Chart 3 shows that on 28 May the market made a low just above the 50% level of the range. If you add in a little bit of time analysis, the run up was 53 calendar days and the run down 52. Thus there was a pullback of 50% in price and 100% in time.
Chart 3 – Range Resistance Card
click chart to enlarge
Once this low was confirmed you would use the ABC Pressure Points tool to project the Feb-Apr range forward from the May low.
Chart 4 – ABC Pressure Points
click chart to enlarge
As you can see, 100% of that range gives a price target of 20.71. As of today, 13 August, the market is nearing that target. If you were analysing the most recent ABC long trade, you would notice that the 50% Danger Zone of that trade was 20.69, giving you a good reason to either avoid that trade or keep your stops close.
As you move forward in your analysis and trading, practise your Highs, Lows and Range Resistance Cards and Repeating Ranges. It will help you to identify which trades to take and which to avoid. Add in some of the time analysis techniques which we cover at the Gann Jump Start Workshop and you’re really cooking with gas!
Knowledge is Power!
Tim Walker
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