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The last time I wrote in the SITM Monthly Newsletter, we were looking at ASX:WBC and ASX:CBA which had similar setups showing a 50% retracement combined with some other price resistance.
WBC turned out to be the easier of the two to trade. If you were comfortable with the advanced entry method ‘short the openers’ you could have shorted on 3rd August after both the 50% retracement and 100% of the ABC were touched. If you waited to see what happened that day then you could have used the ‘short the openers’ rule on 4th August instead. Refer to Chart 1.
Chart 1: WBC Daily Bar Chart
click chart to enlarge
Once in the trade you would next be looking to see if the pull-back was stronger than that of 15th-20th July. We see that the market retraced just over 100% of the price range, and in 6 days – 1 more than July. This gave us confidence to look for an opportunity to add to our position.
This came in the form of an outside reversal day on 10th August with entry on the crossing of point B on 9/8/10. Refer to Chart 2. Whilst entry was outside 33.3% of the A-B range, the strength of the setup had us looking at a possible repeat of the next bigger picture weekly range from 21 June to 6 July.
Chart 2: WBC Daily Bar Chart
click chart to enlarge
For this trade I kept stops behind swing tops, though the 3 contract system would be another approach. You can back test both to decide which would have been more profitable. Upon entering the additional trade, stops were moved for the original trade behind the swing top created by the outside day.
The next opportunity to add to the position came with an ABC short, entering on 14th August. Unfortunately this was what is known as a “bad” outside day, and we were stopped out on the same day. If we’d moved our original and 1st additional position stops when we entered our second additional position then they would have been stopped out too as shown in Chart 3. The original position would have returned about 7:1 and the 1st additional position about 1.5:1.
Chart 3: WBC Daily Bar Chart
click chart to enlarge
Now the question is would you have given up and gone looking for another trade elsewhere, or would you have confidence in the setup giving us a little more? The next ABC setup would have required us to ignore the outside day swing on 16th as per Section 9 of the No 1 Trading Plan, but as this was looking like another 50% retracement and on a gap (see Chart 4) I was keen to take this trade.
Chart 4:WBC Daily Chart
click chart to enlarge
Entry was possible within 25% and with 100% of this trade lining up with 100% of the weekly range I had been watching, a profit target at 100% was set. I then stalked WBC for another opportunity to short another leg down. It seemed this had come in the shape of a double top on a gap, entering on September 8 but we were stopped out the next day. Bring this up on your own chart to see what I mean.
The market has continued up, and as this week won’t be giving us a down bar on the weekly chart (though it may yet be an outside bar) I’ll be watching the upcoming seasonal date, looking for another 50% retracement in the larger price range. This will give us a balance of time with the run up from 6 July to 3 August. If we see a turn around this date, we need to watch where price is. If it’s sitting on or under the 50% of the April to July run down then we might be looking at another terrific shorting opportunity.
Chart 5:WBC Daily Chart
click chart to enlarge
It’s the Journey
Lauren Jones
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