Entering The Market With Safety

Noel Campbell

A couple of weeks back in our Trading Tutors Newsletter I wrote about a pending Double Top set-up on NAB. Those that pay close attention to the articles would also remember this wasn't the first time a Double Top on NAB was discussed over the past few weeks. The market had some ideas of its own and going too early on this trade could have been a costly exercise. The key with good entry rules into the market is that they give a trigger that avoids ‘guessing' when the market has reached a top (or bottom) and waits for some definite indication that you are right.

In Chart 1 we have the bigger picture, still on a daily chart, for NAB. As you can see the market has reacted off a top at $32.04 formed at the very beginning of June. A part of this reaction is due to the stock going ex-dividend. NAB announced a dividend of $0.83 per share and the stock dropped by that amount and a little more over the ensuing couple of days before any real buyers returned. Now none of this is talking about how you might have gone about trading the set-up. This is potentially quite a big double top and it's wise around bigger double tops to use your swing chart as the guide to entry for extra safety, through more confirmation.

click chart for more detail

Chart 2 takes us in closer to the more recent market action on the bar and one-day swing chart. As you can see the market made a false start with a top at $31.92 on 24 May, before pushing just a little higher to the top of $32.04. This is the first example of the dangers of getting too close to a big double top, as the market occasionally throws you out with a couple of false starts. I know a few who traded this first top and only through use of the Openers Rule as intensive care, managed to resuscitate the patient and keep the trade alive.

click chart for more detail

A few readers I imagine are now starting to get the hint of where this article is headed. For those who are still waiting for the punch line, make sure you remember this one for next time. Where is Gann's ‘safest place to sell'? It is always the first lower swing top, bare minimum, on a one-day swing chart.

After NAB fell for 4 or 5 days off the $32.04 top it then rallied for 3 days up to $31.63. This was primed and perfect for the position of the first lower swing top. The actual day it reached $31.63 (Thursday 9 June) the bar chart also showed a beautiful Signal Day telling us to get ready for entry the next morning. The Friday did confirm the swing top and provided us with the entry. At the time of writing (Wednesday 15 June) the trade has crossed the 50% milestone and stops have been moved to break even. However the volume over the last two down days has not been encouraging and the last close was back over the 50% milestone. In the next day or so the trade needs to cross back below the 50% and volume needs to pick up. But what is the worst outcome now? A break-even result and there were no false starts – now that is entering with safety.

Until next time......

Noel Campbell