Aaron Lynch
Aaron Lynch		 Following on from last week’s discussion on News Corporation NCP we examined the idea of trading a price forecast of a 1 day swing chart. This trade exploded over the next few days and returned a tidy profit from a relatively simple set up. Taking this same strategy but applying it to a different time period can also make fantastic returns. By looking at a 2 or 3 day swing chart we open up the potential for greater reward and a longer time frame in the trade.
Many ABC traders focus there analysis on the weekly chart, which is an extremely valuable way to tackle the market as it holds you in for a larger move and increases the reference ranges. There are two distinct disadvantages to this style of trading. Firstly it opens up a greater risk as a dollar value and secondly the trades will be less frequent. I find that using a 3 day swing chart will fit somewhere in between these daily and weekly and can get you into the longer pulls a little earlier. The details of trading on the 2 and 3 day swing charts is a lesson I cover at the Interactive Trading Workshops.

The trade in point this week is on Cisco Systems CSCO and has some strong reasons to make a bullish move. The chart below shows the daily bar chart with a 3 day swing chart overlayed. The price action has been steadily moving down since the January 2004 highs. The area I am labelling, point A, has some strong price and time support so I am looking for the price action to rally from here. At this stage the 3 day swing chart has not officially turned up yet. What it will take is a higher top and higher bottom bar to signal the entry. Another point to note is that we are not seeing an ABC long signal on the weekly chart, and to wait for this to trigger may yet be some weeks away. Trading of the 3 day swing chart is providing an earlier entry.


Chart 1

click chart for more detail

The chart below is using the manual ABC pressure points tool and is highlighting the trade in question. Important points to remember is that all our rules are the same for a 1 day swing trade especially entering by your limits. The entry price for this trade is $19.72 with a limit of $19.97.

Chart 2

click chart for more detail

The final chart below builds the case as to why I like a bullish move from this point. The market is currently holding above the 50% milestone (marked in blue using the Gann Retracement tool). The price action initially gapped through 50% but has made a consistent move to now hold above.

The other point on this chart to note is the orange line. This is the type of main Gann angle we use off the March 2003 low, a date we base a lot of our time analysis from. Running out the angle, CSCO has come to rest exactly on the line where it has found support.


Chart 3

click chart for more detail

Combining these points with our basic swing rules, of expanding upside ranges and contracting downside ranges we are set to trade. Of course if we enter this trade our money management rules and stop loss strategies will limit any major risk in taking this position.

Good Trading

Aaron Lynch