Noel
Campbell 		This week Aaron Lynch and I have been running the first of the Interactive Trading Workshops in Melbourne. It has been three days packed with information, as I'm sure all those who attended would agree. One of the topics covered during the sessions was trading using Two and Three-Day Swing Charts. One of the clients who had just finished the lesson on this subject immediately identified a terrific trading opportunity on the SPI200.
Traders who have been following the SPI200 would be aware we are looking at a potential major Double Top. Here we are looking at the top in March 2002, 3500 and the recent April top of 3486. These two tops are only 14 points apart. David Bowden advocates that you can allow 1% between two tops and still call them a Double Top. With the SPI200 trading around 3500, we get a tolerance of around plus or minus 35 points. This 1% rule only applies when there are several months or years between the two tops. As the two tops get closer together in terms of time, the variance that you allow is less. The bottom line here is that these two tops easily qualify as a Double Top. Chart 1 is a weekly bar chart of the SPI200 highlighting the Double Top.

Chart 1

click chart for more detail

When it comes to trading a major Double Top like this you should wait for additional confirmation before taking the trade. This is an ideal situation to use either a first lower One-Day Swing Top or Two-Day Swing Top entry. In Chart 2 we have the daily bar chart of the SPI200 showing the more recent market action with a Two-Day Swing Overlay applied.

Chart 2

click chart for more detail

You can see in Chart 2 how the SPI200 had made a lower bottom on the Two-Day Swing Chart setting up an ideal opportunity for trading the first confirmed lower Swing Top. Entry for the trade was on April 27 as the market broke the low of the previous day, confirming the second consecutive lower bottom on the bar chart. The entry price for this trade was 3455 with the stops at 3478. This is a great, low risk entry for the Two-Day Chart.

Depending on how you run your stops, this trade would have been closed out on Friday above the 125% Pressure Point. Considering the size of the potential Double Top, this is a fairly short-term perspective for that set-up. What is required here is some advanced stop strategies that may be able to help you secure some shorter-term profit as well as give you the chance to stay in for the longer haul. Another part of the lessons at the Interactive Trading Workshop is Advanced Stop Strategies. It will be interesting to see how these rules play out.

Until next week......

Noel Campbell