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I would like to invite you to do an exercise. This exercise is optional, and is only relevant if you are looking to vastly increase your trading profits. Anyone who would like to post the results of their findings is welcome to do so on the Forum, and I am happy to discuss them with you.
The exercise is as follows. Find an example of the following trade set up:
- Double Top or Bottom;
- On a 50% level of a range on a weekly or monthly chart;
- With Time by Degrees harmony.
Some of Gann’s material that I have been studying recently has shown me the importance he placed on double tops or bottoms on a 50% level as a trading signal. And David Bowden stated in the Master Forecasting Course that you could make good money just trading double tops and bottoms with Time by Degrees.
The purpose of this exercise is, by seeing how set ups have worked out in the past, to be prepared for them when they come in the future. If you really want some practice, have a look at different ways you could have traded the set up. The more examples you find, the better prepared you will be to profit from them when they occur in real time.
To give you an illustration of the potency of the formation, here is one that I came across the other day. It is that famous (or infamous) US stock, AIG. In the heady days of December 2000 it made its all-time high price of $2,075. Like many US stocks, it suffered a severe decline during the 2000-2003 bear market, reaching a low price of $858.40 in March 2003.
Chart 1 – AIG Monthly Chart
click chart to enlarge
Those of you who are currently participating in Aaron’s Time by Degrees online sessions would quickly note that the February 2005 top, which hit the 50% of the bear market range, occurred on the 11th – just a few days after the Seasonal Date. But this is not our interest here, although you can see there was a great short trade. We, however, have bigger fish to fry.
Imagine you were following this stock in 2006 and 2007 (I certainly wish I was!) The top of December 2006 was on the 18th, again very close to the Seasonal Date. The market reacted from the 50% level again, and you might have traded this. But have a look at the pattern between the February 2005 and December 2006 tops. Is this your classic double top formation? No. What we like to see is a ‘V’ shape, with the low between the tops close to the mid-point in time between them.
But watch what happened next. From the 18 December 2006 top the market ran down 71 days to make a low on 27 February 2007. (Notice the number 144 making its appearance in this market – price is around $1,440, and 71 is close to half of 144.)
Chart 2 – Double Tops
click chart to enlarge
Using the Balancing Time tool, we see 9 May as a pressure date. In fact, the market double topped on the 11th, making the total top to top time frame an exact 144 days. However, price held up around the top level for another 6 weeks. Why? Because the time period had not run out. The final top came on 18 June, exactly 180° from the first top of 18 December (and of course again around the Seasonal Date.)
What happened next? Well, if ever there was a waterfall decline in a market, this was it. Prices fell from the last high of $1,458.20 on 18 June 2007 to a final low of $25.00 on 16 September 2008. This is certainly a bit more than 200% of the range between the double tops! David Bowden stated that his aim in trading was to get 50% of the main trend move on the weekly chart. Would you have been happy with 50% of this move?
A few interesting points, which you can see from Chart 3. From the last top on 18 June 2007 to the final low on 16 September 2008 was 447° (close enough to 360° + 90° for me). The date of the low was, you guessed it, close to the Seasonal Date. And if you were measuring the ranges on the monthly swing chart, the price of the low was very close to 200% of the last monthly swing.
Chart 3 – The Downfall
click chart to enlarge
What example can you find?
Knowledge is Power!
Tim Walker
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