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Recently we have been looking at the concept of resistance cards and using these in time, in the same way that we use them in price. To summarise this discussion, we know that markets move in cycles. David Bowden regarded a cycle and a circle as being essentially the same thing. As a circle is measured in 360 degrees, so we can use 360 as a number to measure a cycle of time.
In the past 2 articles, we have explored this in the context of counting days. In other words, from a major top or a major bottom we can count forward 360 days and look to see whether the market reverses around this point. Then, we can look at percentages of 360 and observe those dates as well. We divided 360 by 8 and by 12. This gave multiples of 30 days and multiples of 45 days, which were illustrated on Santos (STO:ASX) using the all-time high of 3 June 2008 and the bear market low of 17 October 2008.
This same process can be used for Trading Days, instead of the Calendar Day counts we were looking at in the earlier examples. Let’s have a look at Santos again and see how they could have helped us.
Chart 1 – Trading Day Counts from All-Time High
click to enlarge
This chart shows the multiples of 30 and 45 trading days running forward from the all-time high price of Santos on 3 June 2008. You can see a number of dates of significant tops and bottoms marked there. Now in a perfect world the market would simply turn on each of these dates, and we could bank our profits and go away on holidays. However, it is not that simple. These are indicators to watch for changes in trend, and must be read in conjunction with your analysis of price and bar patterns such as signal days and double tops and bottoms. Let’s have a look at one example.
On 6 August, the 45th trading day from the 3 June high, the market made a low price of 14.70. It opened at 15.70, fell exactly $1, and then rallied to close at 15.28. Back in 2007, on 9 and 19 October, it had made a high of 14.85. At the time this was the all-time high price. In April 2008 the market had broken above this level, and now on 6 August, it came back, sat on the old top, and then rallied to close in the upper half of the day’s range. This is how time and price come together to give you a signal for a change in trend. You could have gone long on the first higher swing bottom on 13 August. Entry price would be 15.66, and trailing stops under the 1-day swing bottoms would see you stopped out at 17.97 at the Open on 2 September for a profit of 2.31 per share.
Chart 2 – Time and Price Combination
click to enlarge
Currently you can see that on 2 November the market was 361 trading days from the 3 June 2008 high and made a low of 14.70 – incidentally the same low as 6 August 2008.
Knowledge is Power!
Tim Walker
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