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Let me start by introducing myself. My name is Lauren Jones and I have been working in Education Support for Safety in the Market since August 2009. In 2006 I decided I wanted to turn my interest in the stock market to a career in trading, so I commenced my studies with Safety in the Market. I quickly realised that the Platinum program was for me as it would give me some defined goals and a progression path to achieving my aim. I completed the Platinum program in 2007 and have been trading since then.
I must also say how excited I am to write my first article for the SITM Monthly Newsletter at a time when the markets have been providing some great trading opportunities. We’ve seen some ABC trade setups with potentially abnormal A-B ranges that have paid off nicely. One of the filters that gave us confidence to take these trades was Volume.
Volume is one of the Advanced ABC Filters described in Section 8 of the No 1 Trading Plan. We look for higher average volume on the days when the market is moving in the direction of our trade (from A to B) and lower volume from B to C.
The first example is a 1 day ABC setup on NAB. Students from Aaron’s Ultimate Gann Coaching class would have been right on this one. After the SPI topped on April 15 and NAB topped on April 20, we see that NAB had a big swing down into point B on 7 May, our green seasonal date. It retraced for 2 days creating our potential point C then we had an inside day and then an up day. Have a look at the chart:
Chart 1 – NAB Daily Bar Chart
click chart to enlarge
Now we know an inside day can provide a better entry for an ABC trade, but what do we do when an up day follows an inside day? Unless there was plenty going for this trade I’d be inclined to give it a miss as we’re also dealing with an abnormally large A-B range. But have a look at the Volume pattern. This is text book stuff! Volume is increasing from A to B and then decreasing B to C. You won’t always find such clear cut Volume confirmation.
Chart 2 – NAB Daily Bar Chart with Volume
click chart to enlarge
Now the up day doesn’t invalidate the ABC setup as it didn’t move the swing chart. Remember C is confirmed when the swing chart moves down, so a down day following would be a chance to get a very tight entry. If you weren’t confident, you could take a smaller position size or wait for a down day and then take the 2-day ABC that appeared. However you entered, this trade went on to within 1cent of 100% repeat of the 1 day range before we saw even a single up day.
Chart 3 – NAB Daily Bar Chart
click chart to enlarge
There have been plenty of other examples recently of these text book patterns in Volume. For other examples take a look at volume for the early May 2-day ABC on AMP and the 1-day ABC on the SPI. Volume won’t always clearly follow that pattern, but remember strong volume gives us an indication of support for a move in that direction.
Enjoy the Journey
Lauren Jones
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