Banking on St George!

Focussing on the recent movement in St George Bank SGB, an ABC trade stands out as one to watch. SGB one of our major banks has been trending quite strongly since early February of this year. Using the ABC trading plan, which works most effectively in a strongly trending market, and applying the ABC Hilites in the software it identified a long trade this week on SGB.

The potential trade was signalled on February 22 and the entry was made on the 23rd at $20.49. Five days later we are still in the trade based on our rules with Friday’s data forming an inside day on slightly lower volume. Based on the entry at $20.49 and Friday’s close at $21.13 the trade is up $0.64.

It’s always important to measure the risk on any trade you look to enter. You may notice that the confirmed Point C day had quite a small range of $0.10. This allows us to minimise the risk that we are exposed to in this trade with our risk measured at $0.12 per share. If you were looking to take this trade using Share Futures for example, the margin on SGB is $550. This means we can control 1,000 shares for that price rather than the more expensive option of purchasing the shares outright. Using the shares only would have required in excess of $20,000 in your trading account. Trading leveraged markets can be highly profitable as often mentioned in Trading Tutors, keep in your mind though it does require a thorough knowledge to get the best from them.

Stepping back and looking at the larger cycle we are able to see other interesting price based resistance points. Using the manual ABC pressure point tool in the software another prominent range can be measured. The range from the December 2003 low and running up to the January 2004 high is $1.20. By adding that to the low in January 2004 we see a number of pressure points or milestones are formed. Referring to David’s RoadMap Chart, this can assist in identifying the major percentages. David mentions that 150% of the previous range is very important and SGB has just poked its nose above yesterday but has come back on Friday and closed just above this milestone.

The idea of SGB travelling 150% of the previous medium term range is not one to be too concerned about, in cases like this you may consider running your stops a little tighter to ensure that if a retracement does occur then you lock in the profit that you have achieved so far.

One final point that links into our studies on time movement is the use of a geometric angle. Taking a large time frame on SGB back to the low in 1997. This geometric angle or Gann Angle has proven to be a strong indicator of price movement over the years. Where the price action has come into contact with this line it has shown on a number of occasions that it can signal support or resistance. Currently the price action is holding above this angle, a good sign that there is strength in the current move.

It all starts by building your perspective using the daily chart and your ABC points, adding further information on larger time frames and including price as well as time in your studies. This gives you a far stronger idea on how a current trend is likely to perform.

Good Trading

Aaron Lynch