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In the October issue we looked at Lihir Gold (LGL:ASX). For anyone who has been watching Gold futures reach all-time high prices, Gold stocks such as LGL offer great opportunities to participate in the move trading CFDs. This stock has been a fantastic stock to trade over the past 3 months, using nothing more complicated than ABC trading and the advanced entry strategies in the Number One Trading Plan, combined with some Time analysis. This is not meant to be a series, but the trading on LGL has been so good that it is worth a second look.
Basically, the trading strategy here involves looking for a bigger picture set up and then taking the trade signals as they come along. Gann’s mechanical trading system relied heavily on double and triple bottoms and 50% retracement for entry signals, so let’s see how that works here.
You can see from last Issue that our initial entry in August was from a double bottom that formed on the 50% level of the range from all-time high to all-time low.
Chart 1 – Initial Set-Up
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We followed a series of trades from that point. When the market gave a signal that the trend might be reversing, we took profits and waited for an entry in the opposite direction. Picking up the trades from where we left off, an ABC long trade showed up on 9 October. This was an outside day, but not an outside continuation day. If you check the position of the Open and Close of the day, it appeared to be an outside reversal day at the time. So you could not have entered using the advanced rules.
Chart 2 – ABC Long Trade
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Look at the 50% milestone of the trade. It is sitting at 3.32. Compare this to the top of 2/3 June, which was 3.34. The fact that the 50% milestone was before the old top gives confidence that at least risk will be covered before the resistance level is reached.
The following day was an inside day, which also closed low. Finally, on 13 October, an up day would have you in the trade. The trade duly made it to 50% and made a double top, reversed and headed lower.
With the market making a double top, we would start to look for short entries. An ABC short trade duly arrived on 20 October. This was also the First Lower Swing Top after the Double Top.
Chart 3 – ABC Short Trade
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The trade was filled on 21 October, and then proceeded to go sideways for 4 days. This is one of those situations that can test a trader’s resolve, and shows the value of sticking to your trading plan, as Point C was not taken out. Your patience was rewarded on the 27th, when the real down move started, reaching the 100% milestone on the 28th.
On 30 October another ABC short trade was signalled. Should we take this trade?
Chart 4 – ABC Trade Set Up
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What do you notice as you look at Chart 4? There are gaps between Points A and B – a sign of strength. However, Point B is an Island Reversal. Stop for a minute and think what you would do. You have been trading since late august and every single trade has been a winner. Will you just stick with the plan and keep taking the trades? What if you’d only started trading LGL after reading the article in the October newsletter, and this was the first trade you had come across? Would you have the confidence to take it? Would you be afraid of missing out?
Let’s go back to where we began – looking at Resistance Cards.
Chart 5 – Range Resistance Card
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Here we are using the Bear Market range from the 2007 top to the 2008 low. Look at the dates of these turns – 29 October and 24 October. On 29 October 2009 the market has come back and sat on 50% of this range. Now this is starting to look like a potentially significant turn. Let this be your rule – do not take ABC trades which show significant harmony in time and price on Point B.
So now we follow the same procedure that has worked so well before and look for a long entry. And again the same patterns keep repeating. On 2 November the market makes a higher swing bottom, allowing an entry on the 3rd when the market gaps up on the Open.
Chart 6 – First Higher Swing Bottom Trade
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Again you could use the previous major swing range for a price projection, and the Openers Rule would see you in the trade. Again you could look at multiple stop strategies such as a 3 contracts system to manage the trade. I’ll leave you to follow the trade through from here, but you can see there was a further ABC Long Trade signalled on 5 November. This trade was a mirror image of the trade covered on Chart 2 – an outside reversal day followed by an inside day.
Currently the market has reached the 50% milestone of the trade. Interestingly, looking at the bigger picture on the Weekly Chart, it is also at the 50% milestone of the previous major range.
Chart 7 – Milestones on the Weekly Chart
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This would be a point to look to for any reversal in trend. However, with Gold at all-time high levels, LGL still has plenty of upside potential. The important thing though is that following the rules and watching for simple chart patterns such as 50% levels and double tops and bottoms has presented a fantastic series of trades – about 9 winning trades in a row.
Knowledge is Power!
Tim Walker
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