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In a recent Trading Tutors article Looking for a Trending Market, I produced a chart of the US stock Nike (NKE:NYSE) with a Lows Resistance Card overlay and suggested that we watch for a turn in the upcoming period. I have reproduced this in Chart 1 below and time has proven that Nike did indeed make a top at a 100% multiple of the 2009 low. Chart 1: NKE Daily Bar Chart with 2009 Lows Resistance Card
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Barring a short the opener’s entry on 4 May, the next entry would have been an ABC short entry on 11 May. This was also the first lower swing top on the daily chart, yet it was stopped out for break even after only reaching 50%. The lesson here is that First Lower Swing Tops and First Higher Swing Bottoms usually retrace to between 62.5% and 75% of the first range out and this ABC short was less than a 50% retracement. Even though the filter we learn about at the Interactive Trading Workshop rates retracements of greater than 50% as weak, for a first lower swing top or higher bottom we ideally want it to retrace further than 50%.
Chart 2: NKE Daily Bar Chart with Retracement of First Range Out (FRO)
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[Those who would like to do some back-testing on first lower swing tops in other markets will find that similar scenarios played out recently in Caterpillar (CAT:NYSE) and Commonwealth Bank (CBA:ASX)].
After the ABC short failed at 50%, our ‘real’ First Range Out was formed, which can be seen on the 2-day swing chart and we would look for a more significant retracement of this swing. Similar to last week’s assessment of Caterpillar, a 2-day ABC short appeared on 30 May, which ran to almost 75% before another 1-day ABC short appeared.
Chart 3: NKE Daily Bar Chart with ABC Short Setup
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This 1-day ABC didn’t look great on its own because it also had a very large retracement, but take a look at the close on the day at point C. This trade actually dropped rapidly to 125% in just 3 days and there is another ABC short sitting there at the time of writing (3pm, 20 June).
By now the swing charts are all showing a down trend with expanding down ranges, so there is potential to take more short trades on this market. If you haven’t been on this move yet, this might be a stock you could stalk, or perhaps paper-trade to gain experience. If you are yet to take a first lower swing top trade, then analysing this one and others like it is a good way to learn about those advanced entries that you will add to your trading toolbox as you grow as a trader.
It’s the Journey
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