Trading a Classic Gann Set-Up – Sugar

Some readers may recall my recent interest in the sugar market and the potential for a large bull move in that contract during 2004. The sugar market rallied quite strongly off a low in February 2004 and topped on March 24. This rally was the longest in terms of time and price for over 12 months. This can be read as a sign the market is getting ready to turn. The sugar contract though, has been very volatile over the past couple of months, with some wild swings in both directions. Not for the faint hearted. Keep in mind though, W.D. Gann says, that a market will be most volatile around tops and bottoms. Commodities like sugar, Wheat and Soybeans can take many months or years to form the bases from which these powerful rallies occur. Chart 1 highlights the size of the February to March rally in comparison to the previous reactions in the bear cycle leading into the February low.

Out of all this noise in the recent volatility it may seem like it would be near impossible to see some harmony. Well for my own trading in the past couple of weeks there was a moment of clarity. One of the lessons we conduct at the Annual Traders Conference is to offer the Classic Gann Set-Up Lesson. This is absolutely one of my favourite lessons to deliver. It is super hands on and very practical. Sometimes I can almost see the lights turning on in some of our traders’ heads as this lesson unfolds. This lesson is all about knowing how to see these moments of ‘Harmony’ between time and price, as they occur. Not so much forecasting when they will occur, but having the skills to pick up on a set up as it unfolds.

David Bowden makes no secret of how important it is for anyone who wants to be a ‘professional’ Gann trader to incorporate knowledge of Time into their trading. Gann states that if you can combine Time with Price you will know how to trade.

The Classic Gann Set-Up involves five elements…

• Time
• Price
• Position
• Pattern
• Volatility

The first two elements, Time and Price are essentials and are the science side of the set-up. The last three elements, Position, Pattern and Volatility are more like the form reading elements of the set-up, you could say the art of identifying a set-up. Gann trading, like many skills in life, is a combination of science and art.

In Chart 2 I show a quick outline of how I saw the most recent set-up on sugar. The recent major low for the sugar market occurred on February 9. Running out 90 degrees from this low gave us May 10 as a date to watch. When it comes to trading Time by Degrees you must be prepared to give the market a little leeway. The recent spike low came in on May 12, just two days out. Standing back and looking at a slightly bigger perspective, the market had formed a double top, using August 5, 2003 (7.39) and April 28, 2004 (7.30). The low between these two tops is the February low of 5.34. Using the range from the August top to the February low as a reference range and running pressure points down from the April top, the 50% Danger Zone comes out at 6.275.

The last part of this set-up that helped bring it together for me was using a Gann Angle. Running a 1 x 1 line up from the February low, the market came back to sit on this angle on May 12. The market had run down strongly into this date and the potential was high, that it may also run strongly out of this set-up. This latest low for sugar (the July contract) is May 12 at 6.25. I managed to buy into July sugar at 6.33, on 14 May, placing stops at 6.20 to protect the position. It was these three elements that most strongly influenced my thinking to take this trade. Did I know three weeks ago that this would be the set-up? The answer is no. Did I see the set-up as it occurred, watching time and price, come together? The answer is, yes. That’s definitely good enough for me. It is exciting stuff when you see it all come together so nicely.

Until next week......

Noel Campbell