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Welcome to this month’s Safety in the Market newsletter. As I write this article on Monday April 12th, the Euro (EC-Spotv in ProfitSource) has just surged up on the open on Monday morning and is now over four hundred points up from the March 25th low of 1.3266.
This is on the back of the announcement of financial support for the struggling Greek economy by other European nations. Interestingly, the Euro has fallen during 2010 on negative news concerning Greece, however it has struggled to go down in recent times, despite continuing bad news.
When a market is continuing to receive bad news but is not going down any further, often a single piece of good news will send it back up.
Interestingly, I was long the Euro on Friday morning, days before the announcement came out. Was I long in anticipation of good news coming out? No! I was long based on simple Gann techniques.
David Bowden said that the news seemed to come out at the right time to support the charts. For example, the good news would often come out when the market had made a solid low formation.
Before continuing with this article, I would suggest reading the article “US Dollar Strong – For How Long?” that I wrote in the Trading Tutors Newsletter for April 9th. This article shows how the Power of the First Range Out helped to call the March 25th low in the Euro.
Chart 1 below shows the current Double Bottom setup on the Euro (EC-Spotv in ProfitSource)
Chart 1
click chart to enlarge
David Bowden discusses Double Tops and Double Bottoms in the Smarter Starter Pack. While they are strong trading signals and strong signs of support and resistance, it is important to analyse each Double Top or Double Bottom in the context of the bigger picture, Price Ranges and Sections of the Market.
Chart 2 below shows a major Double Bottom on the US Dollar / Japanese Yen Currency Pair (FXUSJY) in 2009.
Chart 2
click chart to enlarge
In this example, the Double Bottom came at the end of three almost equal sections of the market. So not only was it a Double Bottom setup, it was also in a great place for a new move to begin.
David discusses Sections of the Market in the Ultimate Gann Course, and says that the fourth top or bottom can often be a Double Top or Double Bottom.
The All Time High and the subsequent major lows on the Euro were also Double Tops and Double Bottoms, respectively, as shown in Chart 3 below.
Chart 3
click chart to enlarge
This brings us back to the current Double Bottom setup on the Euro. David teaches us that Double Bottoms can be expected to repeat 200% of the range from the first bottom up to the highest point between the two bottoms.
In that case, we would have a price target of 1.3937 to watch, as shown in Chart 4 below.
Chart 4
click chart to enlarge
However I feel that may be a little conservative in terms of this setup. I think we may be at the start of a new bullish range, so I will use the First Range Out from the previous bullish cycle as a price target to watch going forward.
Chart 5 below shows this previous First Range Out applied to the current low.
Chart 5
click chart to enlarge
This would give us a target around 1.4550 to watch.
The First Range Out is a powerful technique to have in your trading tool kit, and anyone with access to the Number One Trading Plan should be on top of it. It is contained in Section 11 – Price Forecasting.
If what we are seeing is a new bull market in the Euro, the First Range Out should give us a clue as to the size of the ranges to come during this move.
I will be presenting a one day forecasting seminar on the Euro in June where I will go into each of these techniques in more detail and show you how to set up saved chart pages to help you monitor each technique as the market unfolds.
Finally, I’d like to end with a quote from WD Gann – “Never exit a trade just because you have made a profit.” You should always have an idea how far you think the market should run, and the First Range Out is as good a method as any I have seen for judging how long to stay in a trade.
Be Prepared!
Mathew Barnes
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