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When we first teach students to select trades, we advise them to trade with the trend. As they increase their big picture analysis skills, they progress to advanced entries, which get them in earlier on a change in trend. Unfortunately, this sometimes leads to students abandoning with-the-trend trading to focus on searching for the turn that will be the “big one”.
To trade a long-term campaign in a market is an admirable goal and achieving it certainly brings financial rewards. But as part of trading that move, much of it will be with the trend. So being comfortable with trading with the trend is essential.
Probably about half of you are wondering what I am talking about as you only ever trade with the trend and are not prepared to take any advanced entry into a move. But the other half maybe are smiling to themselves, knowing that they chased a stock or commodity all the way up a bull market trying to short the next top!
Let’s compare two banks to illustrate the point. I will use CBA and I suggest you go through the same process with ANZ to provide a comparison.
In August I wrote an article for Trading Tutors entitled Double Your Money in 6 Months, which described the resistance above the July top that had formed on Commonwealth Bank (CBA:ASX). I suggest you take a look at the All-Time-Lows resistance card and the 2009 Lows Resistance Card for starters. If you attended Gann Mastery earlier this year, you might have caught the mini-forecast I presented on CBA, in which I suggested we watch July and November for turns. July just made it when the turn came on 31st but this didn’t prove to be the top for the year. In fact, it turned out to be a reaction against the main trend, which didn’t overbalance the May reaction. The main trend then resumed in September, when it sat on some old tops. Resistance became support. See Chart 1:
Chart 1: CBA with Price Pressure at $54 Level
click to enlarge
There was a nice little ABC long on CBA in late September, which we discussed at Trading Tactics in Sydney. I was pleased to hear that a few students had traded this setup. I know of least one who is still in profit on it!
I have been asked recently about the potential double top on CBA, which I have shown in Chart 2. Am I asking too much to want it to just slightly take out the stops above $60 (the April, 2010 high) before reversing? In Chart 3 we can see that we are much closer to the 50% repeat of the 2009-10 bull range from September, 2011 but am I also asking too much to want to see CBA actually hit that price?
Chart 2: CBA with Potential Double Tops at 250% x 2009 Low
click to enlarge
Chart 3: CBA with 2009-2010 Repeating Range
click to enlarge
At present there is an ABC long trade showing on CBA, with 75% approximately clustering with the 50% level shown in Chart 3. If the market rises again in the next short period, then perhaps that price perfection will play out. If you have studied time analysis, you will most certainly want to also take that into account when assessing this double top.
Chart 4: Swing Charts for ANZ and CBA
click to enlarge
The daily, monthly and weekly swing charts on CBA are all currently showing uptrends. While it looks like there might be a change in trend, it isn’t yet confirmed and waiting for a first lower swing top would be prudent. By comparison, ANZ seems to have already changed trend and is showing a downtrend on the daily and an uncertain trend on the weekly.
I suggest you do the homework on ANZ to see if there is resistance or support ahead and to watch for an overbalance to the short side to indicate a change in trend on the big picture too. If there are further falls ahead for the banks, there should be plenty of with-the-trend trades to come.
It’s the Journey
Lauren Jones
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