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Aaron Lynch
Casting your minds back to the first article this year in Trading Tutors Issue #90 14 Jan 2005 I wrote about the movement of the high grade copper market HG-SPOTV. This contract is traded on NYMEX and has all the virtues of a good market to trade with sizeable ranges and good liquidity. The margin requirements for copper are also a little smaller when compared with the full oil and gold futures contracts, so when moving to instruments traded on NYMEX this can be a little more tolerable for a trader.
Looking at the chart below I have circled in orange where the market was positioned when the first article was published. The swing bottoms overall have been increasing with the 50% danger zone sitting above it at the 1.47 mark. The price action has been moving steadily closer to what has been significant resistance on two occasions before.
Chart 1
click chart for more detail The next chart shows the most recent price action having broken through that area of resistance. Now, many technical analysts would always be thinking about the potential of a false break, so entering as soon as the resistance is broken can be a risky strategy. One point on the chart that is significant is that the old resistance level proved to be support for the next days trading range, a positive sign if you are trading long.
Form reading the most recent bar, it was an inside day which signals a day of indecision between the bulls and the bears. The open and close pattern signify that the bears drove down price action throughout the session before a bullish rally caused prices to close in the top quarter of the range.
Chart 2
click chart for more detail In referring to the previous article I mentioned that trading the first higher swing bottom above the 50% danger zone would be a safer strategy. Using your swing chart to trade this market is critical, as it keeps you safe with the trend. The fact of this market is that the 1.47/1.48 price area has proven to be a significant point to cross, so entering this market on the next confirmed higher bottom would guard against the idea of entering on a false break.
Chart 3
click chart for more detail One final point of confirmation that I use to confirm the strength of a trend is the “Gann Angles” that combine the study of time and price. The final chart shows the strength of the angles in the current market action. Starting our reference point at the bear cycle low in June 2004 we see that the angle has provided continued support. For the more advanced traders you may want to look at other angles from this point to continue your analysis.
Chart 4
click chart for more detail Be it purely price trading with swing charts and milestones, or a more layered approach with time, if this market can hold above the significant levels it may be strong enough to move closer to its all time high.
Good Trading
Aaron Lynch
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