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In my last article for the Safety in the Market Monthly Newsletter (PGN - An Advanced Trade Setup), I wrote about a strong trade setup on the U.S. stock, Progress Energy (PGN). At the time the stock had fallen heavily from strong Double Tops in May and July, 2011, as shown in Chart 1 below:
Chart 1
click chart to enlarge
The first lower swing top off this Double Trade was a trading setup we discussed in detail at the Melbourne Interactive Trading Workshop in July. Most of the students in the room that day at least watched the trade and a few took it. A couple of students even did follow-up work on the stock and came up with future price projections.
Fast forward three months and PGN has moved on from these falls, as can be seen in Chart 2 below:
Chart 2
click chart to enlarge
PGN rallied quite strongly and is now trading at around $53 per share.
In Chart 3 below, I have recreated some of the ‘First Range Out’ work that helped call those Double Tops. The ‘Power of the First Range Out’ is a technique taught at the Interactive Trading Workshop and I ALWAYS use it before taking a trade.
Chart 3
click chart to enlarge
The theory is that the first move a market makes from a major high or low will generally provide a good hint as to the size of the subsequent ranges in that move.
In this case, I have used the range from the March, 2009 low up to the December, 2009 high. You can see in Chart 3 above that a 100% repeat of this range was one part of the analysis that called the Double Top setup in July this year.
You can also see that we are now at 150% of this current range. If you are not familiar with the ‘Road Map’ chart from the Smarter Starter Pack (the big, colourful chart in the tube!), stop reading here, pull it out and check out what David says about the 150% milestone.
In Chart 4 below, we can see a third and approximately equal leg leading into this current price area of $53.
Chart 4
click chart to enlarge
This says to me that PGN is getting close to a top and that we should look to the swing charts for potential short-trading opportunities in the coming weeks and months.
As a Platinum Student in 2006, I saw this technique at an Interactive Trading Workshop and it really came to life for me when I saw it used by professional traders, like Aaron Lynch. Since then, I have done many, many hours work on this wonderful technique; simply using the ‘ABC Pressure Point’ tool in ProfitSource (located in ‘Drawing Tools’).
See if you can recreate this analysis yourself in ProfitSource. (Hint: There could be smaller or larger ‘First Ranges’ to try, in addition to those I have shown you.)
Remember what David says in the Number One Trading Plan: “It is from yearly or seasonal ranges that you get the ability to call the big moves. There is no other way.”
Be Prepared!
Mathew Barnes
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