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Aaron Lynch Following on from the recent Trading Tactics workshop in Sydney we looked at NCM as a case study of the ABC trading methodology. We found the available trades by running the scanning tool in the software and a list of potential trades was listed in a matter of seconds. In moving through the list the NCM long trade stood out as a stock in a solid trend.
There are a number of facets that come into this trade when you step off from the list that your software generates. We first need to understand what instrument we want to trade. On NCM we can trade the straight physical stock, an individual share future, contract for difference or even exchange traded options or warrants. Trading physical stock is a noble pursuit; however, the limited leverage can make it tough for a new starter to get the most from a limited account.
The chart below highlights the ABC point I am referencing. We would have placed our orders for the trade before the market opened on Monday morning. The ranges on our swing chart were expanding on the upside and contracting on the downside, so opening up your limits to 33% was a good strategy. The other point that was sitting in the back of my mind was that the Dow Jones was up by a solid move on Friday, so this would put obvious bullish pressure on Monday's open.
Chart 1
click chart for more detail The open proved to be very strong and the price of NCM gapped up. This gap was outside the 33% limit ensuring that a standard ABC entry could not be taken. Like any skill, as your experience and knowledge grows the ability to make informed decisions can assist in making your trading more sophisticated. Gann's studies of bigger picture price analysis and the application of a form reading tool - the opener's rule - would have ensured you entered this trade.
By watching the initial price and volume action early after the opening bell you can gain a sense of the sentiment of the traders in the market. In the case of NCM the price action and volume were in the right position to enter safely into the continued up trend. We also need to modify the initial placement of our stop loss to reduce the risks involved in entering the trade outside the normal limits. The day we entered the trade the price action confirmed a move above the 50% milestone and as of Tuesday March 8 th the price action had also moved past the 75% milestone, ensuring a profitable trade is on the cards.
The study of markets gapping and the application of the openers rule is a useful technique to add to the art of trading with a swing chart. These techniques have been outlined in full in the new release of Safety in the Market's Number One Trading Plan.
Good Trading
Aaron Lynch
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