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It has been some months since I wrote a Trading Tutors Newsletter article, and in that time CBA:ASX has provided some good trading opportunities. We’ve seen a double top form at 50% of the range down from April to July 2010, and a smaller picture double top form in the run down from the September high, which was the second of the big picture double tops. I mentioned in this month’s Safety in the Market Newsletter article that the bigger picture double top had run to 100% and the smaller picture double top had run past 200%. Refer Chart 1.
Chart 1: CBA Daily Chart with Double Top Patterns
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Despite a possible profit target of 200% for the bigger picture double tops, several Safety in the Market traders have indicated they took profits at the 100% point. Let’s have a closer look at why they might have done this.
In the following four charts I have set up resistance cards for CBA. We can see price support from the Feb 09 to April 10 Ranges resistance card, the Jan 09 Lows resistance card, the 07 All Time High to 09 low Ranges resistance card, and the All Time Low to All Time High Ranges resistance card. To read more about using resistance cards in Price Forecasting refer to Section 11 of Safety in the Market’s The No 1 Trading Plan. For those comfortable with this process you might also try looking at a possible First Range Out from the April high.
Chart 2: CBA Daily Chart with Feb 09 to April 10 Ranges Resistance Card
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Chart 3: CBA Daily Chart with Jan 09 Lows Resistance Card
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Chart 4: CBA Daily Chart with 07 All Time High to 09 low Ranges Resistance Card
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Chart 5: CBA Daily Chart with All Time Low to All Time High Ranges Resistance Card
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Four resistance cards all showing support at a key milestone for a trade (100%) can be considered a significant price cluster. When analyzing this set up, before even taking the trade we should have been looking at these resistance cards and factoring the price cluster into our profit target for the trade.
The next question becomes one of do we look to trade long out of this price or do we wait for another short opportunity to continue the leg down? The one day swing chart has just changed to show an up trend, but the 2-day, 3-day, weekly and monthly are all still showing down trends.
One scenario to look for from here would be for the market to turn at 50% of the September to November range, however we can only trade what the market gives us. Try recreating those resistance cards for yourself, and if you have ProfitSource you can keep them as Saved Charts for future reference.
It’s the journey
Lauren Jones
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