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At the Gann Jump Start workshop in Melbourne in early October I was asked by a trader about a set up in Lihir Gold (LGL). He had identified this set up, but couldn’t work out how to get on board as it raced away. Let’s work through this and see what you might have achieved by following the rules. First, here is the set up.
Chart 1 – Set Up For the 21 August Low
click chart to enlarge
Take the time to study this chart. The market had run down from 18 February to 20 April. It then rallied into a top on 2 June, before falling to a low on 21 August which was almost an exact repetition of the previous fall. This low of 21 August also fell right on the 50% level of the range from all-time high to all-time low, and was almost exactly 180° from the 18 February high. As we run through the trades that follow, open a chart of LGL and use the Walk-Thru tool to follow one day at a time.
Having identified the set up, we are now waiting for an entry signal. The first day up, Monday 24 August, gapped up and confirmed the low, but didn’t offer an entry. The next day, 25 August, gave an Outside Continuation Day entry, straight from the Number One Trading Plan. This also confirmed the First Higher Swing Bottom. But what do you use for a Reference Range? I would use the run from 20 April to 2 June, as that was the previous main move in that direction, and we’re expecting a good run from this set up.
Chart 2 – Outside Continuation Day Entry
click chart to enlarge
This would be a great situation to use a 3 Contracts System, as taught at the Interactive Trading Workshop. As an aside, because of the strength around the 21 August low, there is no way you would take the ABC short trade signalled on 24 August.
As Chart 3 below illustrates, there were a further 2 ABC long trades signalled in the following weeks. Then on 17 September, the market reached the 50% milestone of the latest ABC trade, and then gapped down the next day to form an Island Reversal pattern. You could have exited your entire position this day, even the part trailing the swing bottoms, by moving your stops to, say, one-third of the Average Range below the 50% milestone.
Chart 3 – Trading The Run Up
click chart to enlarge
Study Chart 4 closely. After the Island Reversal top on 17 September, an ABC short trade was signalled on 23 September. This was filled the next day, when the market gapped down, thus giving Island Reversals at Points A and C. We will assume you exited the trade at the 100% milestone. Then, on 30 September, the market made a low at the 50% retracement of the run up from 21 August to 17 September. This made 27 days up and 13 days down, giving an almost exact 50% retracement in time and price. In doing so it closed the large gap made during the run up.
Chart 4 – Pull-Back to the 50% Level in Time and Price
click chart to enlarge
Again you would be looking out for an opportunity to go long, which duly arrived on 5 October, when the market confirmed the first higher swing bottom after the 30 September low. Again we use the previous run in the same direction for a reference range, in this case the move from 21 August to 17 September. As this article is written the market has again advanced strongly and reached the 50% milestone, where on 9 October it made an Outside Reversal Day. This would be a place to move your stops up under the low of the day, ie. to 3.12, thus locking in a significant profit.
Chart 5 – Run Up from 30 September Low
click chart to enlarge
The actual profit you would have made from this series of trades would vary according to the trade management strategy you employed. But at the very least you should have been able to double your account in less than 2 months, simply following the rules in the Number One Trading Plan.
Please take the time to go through these examples and practise them for yourself, so that you can reap the full benefit from the exercise and match or better these results in your own trading.
Knowledge is Power!
Tim Walker
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