BSL - Double Tops and Beyond

After a recent journey overseas I am welcomed back to the Australian market with the somewhat predictable sell off in September and October in our local market.  Many have taken advantage of the great selling opportunities that have been present and a quick scan of the local market will reveal a bias to short trading as opposed to long.  It should be encouraging to newer traders who have invested time in learning how to trade short, that they finally have some opportunities to put these skills into action.

The basis for Safety in the Market traders trading any direction is the swing chart. This in isolation is an excellent tool for determining trend but when combined with other established trading signals and patterns can supercharge the results and provide greater confidence in taking trades.  Blue Scope Steel BSL has been a darling of the market since it listed in 2002 and has provided strong trends in which ABC trades have delivered great trading results.

Double tops and double bottoms are a way to identify key levels for support or resistance, and the market psychology is relatively simple at these times. These patterns suggest either bullish buying pressure or bearish selling pressure is coming to an end and when the imbalance between buying and selling occurs we see a change in trend.  Taking a look at the chart below we can see the recent double tops in August and September.  David Bowden applied a rule to trading these patterns in the Number One Trading Plan that allowed us to project upside and downside targets, in this case to the 200% milestone so we may have some distance left to run.

Now some who were watching this market closely as the tops formed may have set their short positions of the top as the market gaped away, this is for the more skilled trader.  Had you missed the initial move this is the time to come back to the premise of our plan swing charts and anticipate the next possible entry the first lower swing top. Combine this with the use of ranges in our swing chart and we can see that there were increasing ranges on the downside matched by decreasing upside ranges.

We are currently presented with an ABC short trade in the run and the entry at the time of writing has not been confirmed.  The anticipation is always a critical aspect of a traders approach. One thing that I am watching is the retracement from B to C to be around the 50% point or David Bowden’s danger zone.  If this level can hold then we may see the price action move down to the 200% point of the double tops. And as we are entering late in the run it would be prudent to place stops close to the market and minimise any losses.  This setup may also present a good opportunity to stop and reverse, if the opportunity arises, but this would be for the more experienced trader.

The pullback we have seen has provided some good trading but watch the swing chart for changes in trend, the swing chart will keep you safe.

Good Trading

Aaron Lynch