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This is the title of a section that WD Gann wrote in 1923 in a book called The Truth Of The Stock Tape. (The stock tape was the print out of each individual stock transaction.) Here is an extract from that section:
‘Any trader who has followed the market for ten years or more, and has been an active trader, if he will carefully analyse his trading, will find that there were certain stocks which he was never able to make any profits in…while other stocks always seemed to favour him, so much so that he would call them his pets…‘When you find that a stock does not seem to work well for you, leave it alone. Quit trading in it, and stick to the ones that favour you.’
It is worth having a look at this, as many people may read this series of articles on Santos and use the information to trade the stock. There is nothing at all wrong with this; however, it will turn out profitably for some but less so for others. A trader commented the other day about a bad experience he had in Santos some time ago that still coloured his view of the stock.
Gann is giving the answer to this phenomenon in this quote. Each of you reading this newsletter will find that there are some markets that work for you and some that don’t. One of the most important things to do in trading is to find those markets which you trade profitably and stick with them. You don’t need a large number of markets; even a few stocks will do.
So the best way to make use of the information in these articles is to have a look at the analysis and take and apply it to another market that you are trading. Then these techniques will become your own and will enhance your own trading in your favourite markets.
Having said that, let’s do a quick update of the market action since the last article. You will recall that we had looked at going long on the breakout of the sideways range that had formed during July and August. Chart 1 below updates the chart to the present. It would be helpful to revisit the article in Issue 323 and look at the different options of where to place stops.
You can see that on 26 August the market moved back into the gap but found support and reversed. If you had placed stops under the low of the break-out day (24 Aug) you would have been stopped out, but the other alternatives would see you hold on for the upside move. This is an illustration that it is generally safest to place stops underneath the gap.
Chart 1 – Break-Out Trade
click to enlarge
You can also see on this chart that the rally continued up to the 3 x 1 angle from the 17 October 2008 low. Again, this is discussed in detail in other recent articles. The market has stuck its head above this angle but not yet penetrated it. However, remember there was a price projection for a target of 16.63.
Chart 2 – Current ABC Trade and Price Cluster
click to enlarge
Chart 2 shows that as of this writing, Tuesday 1 September, an ABC trade has formed. 100% of this trade comes in at 16.56. Further, there is an old top of 16.58 on 27 March. If price can get above the 3 x 1 angle this would be a target to watch for a change in trend.
Knowledge is Power!
Tim Walker
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