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Imagine that instead of running your own business as a trader, you were employed on the trading desk of a corporation. What would your job description be? It would probably be something like ‘make as much money as possible in the shortest period of time.’ As it happens, this is a phrase that Gann uses a number of times in his writings.
In the Smarter Starter Pack, David states that one of the greatest advantages and the greatest disadvantages of being a trader is that you are your own boss. Stop to think for a moment. If you had to trade for someone else, who was constantly monitoring your performance, would you be a bit more diligent in your trading analysis? So why not imagine that this is your actual situation and see how you can improve your performance?
You might start by asking the question, ‘how can I make the most money in the shortest period of time?’ Fortunately, both David and Gann give the answer to this question. The best trades and the fastest profits are made in strongly trending markets. Consider the two charts below: Chart 1 – A Strongly Trending Market
click chart to enlarge
Chart 2 ? A Non-Trending Market
click chart to enlarge
Can you see even with a quick glance at the chart that the first market is the one you should be trading? With the abilities in ProfitSource to scan different markets, it is possible to search out the ones that are moving and focus on them.
‘But hang on a minute,’ you say. ‘I’ve been taught that I should specialise in one market and learn to know it like a cow knows her calf. Now you’re telling me I should be looking across the board for markets that are trending strongly.’
Yes, that is exactly what I am saying. I don’t recall either Gann or David saying anywhere that you must treat your chosen market like your only child and devote all your love and attention to it. If we are in business to make money, we must go where the money is.
For the record, the first chart above is Apple (AAPL), and the second is Commonwealth Bank (CBA). I have picked these, although I could have chosen many others, because both of them have come up in discussions on the Safety in the Market Forum and at seminars recently.
Let’s have a look again at the chart of Apple. This stock has had a tremendous bull market that has lasted since the beginning of 2009. Out of interest, I have put on the ABC long and short hi-lites on the weekly chart.
Chart 3 – Weekly Chart of Apple
click chart to enlarge
Since the beginning of 2009 there have been 10 ABC trades. Only one of these returned a loss, and you might have been excused for not taking it, as it contained the abnormal range caused by the ‘flash crash’ of May 2010. I’m not saying that you would have taken all these trades, but it is food for thought, isn’t it? What about the daily chart? Chart 4 – Daily Chart of Apple
click chart to enlarge
Here you can see that there was a sideways period during the last 6 months of 2011. It would have been a good idea to stay away from this market during this period. But look at what has happened since Christmas. From the low of 377.68 on 14 December, price has escalated to a high of 503.83 on 13 February. This is an increase of over 120.00 per share in 2 months! There have been 3 ABC trades during this time, and if you did nothing else over this period but take those trades you would be a happy person.
Those of you who joined me for the Trading Webinar last November know that we are watching this market right now, as it has today triggered one of the trading signals from the Commodities Course that we used in our Trading Plan. ABC trading is only the beginning. Both David and Gann give you many other ways to trade a move. But ABCs are the basis, and you must master the basics first.
Now of course all this is going to give you some homework. What you have to do is come up with a way of identifying a strongly trending market so you can trade it, and identifying a sideways market so you can stay away from it. You can see that ABC trading in Apple was not nearly so profitable in the last 6 months of 2011.
2012 will be a hugely profitable year for those who are willing to follow the money and trade the markets that are making moves. Are you going to be one of those people?
Knowledge is Power!
Tim Walker
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