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I am often asked whether I trade using any signals other than ABC setups. The truth is, just about every trade I take is based on an ABC setup – just not always an ABC setup based on the one day swing chart we use in the Smarter Starter Pack and at Trading Tactics.
I’ve heard David Bowden say that when he created the Smarter Starter Pack, he didn’t want to create a program like Microsoft Windows, where every time you upgraded to the latest version you threw away the old version and didn’t use it again.
Instead, he wanted his beginner-level course - the Smarter Starter Pack - to teach you trading concepts that would stay with you throughout your trading journey. After more than six years studying David’s methods, I am still using the very same techniques David laid down in the Smarter Starter Pack. The only difference is in the way I apply them.
I’ll use an example from our recent three-day Interactive Trading Workshop in Perth to demonstrate. On each day of every workshop we conduct, we run a scan over the market to look for potential trading opportunities.
At the Perth Interactive Trading Workshop we found a potential ABC Long setup on ILU to trade on May 24, 2011 as shown in Chart 1: Chart 1
click chart to enlarge
This ABC Long trade could only be entered by 33% and while it looked reasonable, with expanding upswings, contracting downswings and a 55% retracement, we spotted that the 2-Day swing chart had just completed 100% of its previous range and might need to have a pullback before any further up-move. This is shown in Chart 2: Chart 2
click chart to enlarge
Due to this 100% repeat of the two-day swing range, we decided to let the one-day ABC long trade go and wait for a potential two-day ABC setup. The next day was an Outside Day, as shown in Chart 3: Chart 3
click chart to enlarge
The one-day swing chart trade was triggered by the Outside Day but with an entry that was past 33%. However, the Outside Day turned the two-day swing chart down, while leaving our ‘count’ at ‘one day up’, remembering that in multi-day swing trading, Outside Days count twice.
This meant we now had a two-day ABC long setup for the next trading day, as shown in Chart 4: Chart 4
click chart to enlarge
The two-day ABC long setup could be entered by 25%, so this trade had a larger reward-to-risk-ratio than the original one-day ABC long setup, which was a 33% entry.
So not only did we have a bigger picture, stronger looking setup, we also increased our potential profit on the trade from a 2 to 1 reward-to-risk-ratio to a 3 to 1 reward-to-risk-ratio.
As a professional trader, your focus should be on minimising risk and stacking the odds in your favour. Looking at bigger picture ranges can help you to achieve this.
Multi-Day swing trading and analysing a market on the bigger picture is covered in detail at our three-day Interactive Trading Workshops, which are held in computer labs with small class sizes so we can give individual students maximum attention. Our next ITW is in Sydney on June 22, always an important date to watch in the markets!
Be Prepared!
Mathew Barnes
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