BHP - An ABC Trade Setup

At the end of the Trading week most want to step back and take stock of what has occurred in the week that was. It is also a good time to analyse any positions that you are currently in and ensure that they are running to your plan. For those who are looking for opportunities in the coming trading week, running your ABC scan on a Friday night after you have downloaded your data starts to get the ball rolling on what lies ahead for Monday.

Having just downloaded my data for Friday and assessed the trading week that has just finished, it’s time to look for new opportunities. Scanning the market for ABC trades is quite simple in the Safety in the Market software. When I ran this scan over stocks, BHP was flagged as a potential trade. I have set up many different quote pages in the software that cover stocks that have plenty of liquidity and also have the ability to leverage against. This can be in the form of an Individual Share Future (ISF), Options or Contract for Difference (CFD).

BHP fits the mark in this case. Looking in the chart below you can see the potential ABC trade highlighted, in this case it is a long trade. A number of aspects come into analysis when weighing up the strength of this trade. Measuring the swing ranges is very important and using the swing overlay feature in the software and adding the swing tops and bottoms highlights is one good way to do this.

The chart shows expanding ranges on the upside with $0.36 the previous swing up and $0.52 the current swing up. Also contracting ranges on the down side with the previous down swing $0.46 and the current down swing $0.32. Another signal I am looking for is that Point B is higher than the previous swing tops and this is the case for BHP.

Seeing the price action on the bigger perspective is also important. The bar marked as Point B in this trade has pulled up right on the 50% pressure point when looking at the February low this year and the 2004 high in March. It is quiet common to see the market pause at the 50% point, if the market has strength it should move quite strongly through this level and be supported by solid volume.

Bringing time aspects into the trade setup is very useful and for those who have studied this area you may have noted some “harmony” around the May low. After the bearish move in April 2004 a low was formed in early May. This low showed “harmony” being 60 degrees from the March high and 90 degrees from the January low, which is also the current low for 2004 at $11.13.

As with all trades, running tight money management and risk control through stops is paramount. It will be interesting to watch how this trade comes together. I will be monitoring this with some of the Safety in the Market crew in Singapore, as this week we are off to talk trading in one of Asia’s most interesting markets.

Good Trading

Aaron Lynch