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Welcome all Safety in the Market students to this month’s dedicated newsletter.
The severe falls we saw in the markets during July and August provided profitable opportunities for those with the skills to trade them.
This month I’m going to take you through a trading campaign on PGN (a US energy stock) as it unfolded through the crash period. This came to my attention when I ran a scan for ABC trades on the US market and appeared as a potential ABC Long trade setup, as shown in Chart 1 below.
Chart 1
click chart to enlarge
We can see that Point B is sitting on a potential Double Top. From this potential resistance level, PGN gapped down and a gap in the BC range is never a good sign for an ABC trade, Long or Short.
In Chart 2 below, we can also see that the volume was very weak on the way up (the AB Range) but stronger on the way down (the BC range). Again, this is not what we want to see for an ABC trade setup.
Chart 2
click chart to enlarge
This big picture work (combining the BC gap and the volume) was enough for me to tell the Interactive Trading Workshop class I was teaching at the time that I did not like this as an ABC Long setup.
But Double Tops are potentially a very strong sell signal, so we looked at the chart to consider whether a shorting opportunity was possible. W.D. Gann said that the safest place to sell was on confirmation of the first lower swing top and on July 12 the ABC Long trade on PGN was triggered. However, a potential first lower swing top setup was also presented, as shown in Chart 3 below.
Chart 3
click chart to enlarge
Notice that although the daily trend is still up, we are seeing expanding downswings and contracting upswings, which is an excellent confirming indicator for your first lower swing top trade setup.
The class discussed this potential setup and found there was strong Price Forecasting evidence that further confirmed the Double Top setup. On the strength of this, some students decided to take the short trade. For one student, it was their very first trade.
For a trade management strategy we spoke about using the three contract system – which is part of the Interactive Trading Workshop syllabus - and adding to positions on subsequent ABC Short setups. David Bowden wrote in the Smarter Starter Pack that Double Tops can often reach the 200% milestone, and we made this our final profit target, as shown in Chart 4 below.
Chart 4
click chart to enlarge
The short setup was entered on July 13, the very next trading day. Once the trade is taken, all you can do is manage your trade according to your plan.
History will show that PGN did in fact reach the 200% milestone, giving one additional ABC short trade on the way down, as shown in Chart 5 below.
Chart 5
click chart to enlarge
This trading campaign would have returned a conservative 60% to your trading account, based on a 5% risk. That’s a 12:1 Reward to Risk ratio – enough to significantly boost your account. Or wipe out 12 losses!
Not a bad debut trade for that diligent Safety in the Market student who followed through on their analysis!
These opportunities might present themselves three or four times a year on any given market. Think about that – would you rather take 100 trades a year for small returns or three or four really strong trade setups a year for massive gains? How many of these trades would you need to take each year to make a significant difference to your trading and your lifestyle?
The buck starts here – Reserve your place for the Aussie Dollar online seminar
On Saturday, September 24, I will be presenting a one-off, one-day online forecasting seminar focusing on the Australian Dollar. Whether you are trading currencies, commodities or any other futures market, movements in the Dollar will be always impact your bottom line.
To make sure you get maximum value from the seminar, I am conducting a series of bonus online videos to provide some background training and familiarity with this fast moving currency. Two of the three sessions have already been run but recordings are available to those who register for the main event.
Places are limited and filling fast so call 1800 622858 or email accountmanager@safetyinthemarket.com to register.
Be Prepared!
Mathew Barnes
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