The Safest Place to Sell

Noel Campbell

Here I am preparing the latest article and all that has basically happened between now and last time is the SPI200 has continued up! Times like now, when the market is defying normal logic can be dangerous for even experienced traders. Speaking with a broker during the week, he was telling me how some very experienced traders on his books are short from way back and copping a hiding. Holding on to a losing position and not admitting the ultimate truth, the market is always right, can be one way of undoing years of good work. When trading futures, you can’t afford to do that… ever.

I’ll concede that I had set-ups that had great potential in both October and November for a top, both of which I had a go at shorting. Now stops have got me out, keeping me safe and damage to a minimum, I hope that is the story for all our traders. It is a good opportunity now to highlight W.D. Gann’s safest place to sell and how that would have worked in this run-away bull market.

Gann’s safest place to sell is the first lower top. When we discuss a top in this sense, we are talking about a ‘SWING’ top. Chart 1 shows the market action around the mid October top on the SPI200. The top we may have been looking to trade came in on 12 October. The entry signal, on confirmation of the first lower swing top, was on 20 October, with stops above the swing top.

click chart for more detail

In Chart 2 we have the image of what unfolded over the next few days. The market came back to make a second lower swing top, not quite stopping us out. Then we saw quite a significant gap down, which provided some encouragement for the bears. If 12 October was to be the top, the market shouldn’t really fill that gap. So at this point, stops are moved down to just above the top of the gap, leaving the trade with a tiny risk. As the story goes, the market did fill the gap and the short trade was closed out for a small loss. A number of our traders managed to stop and reverse using the Openers Rule and getting long in the market.

click chart for more detail

In Chart 3 you have the chart up to date, taking in the market action up to 30 November. The key here is that the swing chart has not given us another sell signal using the ‘safest’ place.

click chart for more detail

So to those experienced traders out there who are suffering, by being a bear out of season, the benefit of the Swing Chart is clear. The other big benefit to the swing chart, is that it has only been giving out signals to go long. So not only does it avoid nasty situations when trying to trade a change in the trend, it is also an extremely efficient model for trading with the trend when it’s on. So for our traders who are watching out for a top, remember the ‘Safest Place to Sell’, is the first lower swing top!

Until next week......

Noel Campbell