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David Bowden says in the Number One Trading Plan that “it is from yearly or seasonal ranges that you get the ability to call the big moves. There is no other way.”
This is from Section 11 – Price Forecasting, a chapter I believe all students should revisit regularly.
David has prepared you for this work on repeating ranges by training you to focus on the smallest of ranges that repeat – the one day swing chart ranges. When David talks about yearly or seasonal ranges, he is talking about the larger ranges, often on the monthly or yearly swing chart.
I want to take you through a recent example of a price cluster that we found during the current round of Advanced Trader Coaching on the stock RMD.
In the following charts, I am using a single Price Forecasting Tool, the ABC Pressure Points Tool, which students are introduced to at the Interactive Trading Workshop.
In Chart 1 below, we can see that RMD has made three equal ranges to the upside on the very large picture. I’m not just picking random ranges, I’m using the entire history of RMD.
Chart 1
click chart to enlarge
As you can see, the numbers are not exact, but they are close. To get the most out of this article, I would encourage you to study it in conjunction with pages 145 to 151 of the Number One Trading Plan. Recreate the charts in this article and David’s original charts, and you will see the importance of this lesson.
In Chart 2, we go into more detail on the third range, the $4.54 range in Chart 1 above. You can see that this range consists of two equal ranges itself.
Chart 2
click chart to enlarge
The $3.51 range in Chart 2 above can also be broken down into four equal sections, as shown in Chart 3 below.
Chart 3
click chart to enlarge
These charts, combined with a Lows Resistance Card, gave us a price target of $7.82 to watch on RMD. The All Time Low of RMD was $1.58, and 5 times this is $7.90. This was done by taking the 100% milestones of the ranges and averaging them.
In Chart 4 below, you can see that the market made a top at this level on May 18, 2010.
Chart 4
click chart to enlarge
Since then, the market has broken this level for two days but was unable to close above the price cluster for more than one day. This has given every indication that it was a false break of this cluster.
With all these big picture ranges coming together, there is the potential for a substantial move to the downside on RMD. The market will throw up many potential opportunities along the way, it’s up to us as traders to recognise them and trade them.
Your Number One Trading Plan will show you additional ways of entering trades other than ABC trades and Tim Walker’s recent series of articles on Santos are also well worth investigating when studying Advanced Swing Trading.
The work I have put together in this article is quite simple if you take fifteen minutes to recreate these charts in ProfitSource using the ABC Pressure Points tool. Once you understand this example, you will have a good idea of how to break down sections on the markets that you trade.
Be Prepared!
Mathew Barnes
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