|
Being diligent with your approach to the market and focussing on the “now” ensures that you don’t get carried away with only looking for the trades that I call the “trade of the year”. Speaking regularly to people I see a number of traders getting caught up in a mindset that has them focussing on a particular outcome for their favourite share. For example share XYZ is showing strength, or about to report. This means that they lose sight on all the other opportunities and tie up all their time and emotion in this one outcome, either waiting or praying that it will happen.
“The trade of the year is something that will only present itself after the fact not before”
Focusing on the core of what ABC trading gives us, it ensures that we are trading with the trend. No matter whom you take your lead from in the markets is it Gann, Elliott, or Livermore they all maintain that trading with the trend is the smartest way to participate.
BHP has trended very strongly on a daily and weekly chart since early July, with a market that is moving in this way we could have been gearing ourselves up for a number of trading opportunities using ABC’s. Let’s take a look at the two most recent trades.
The first ABC long trade was signalled for entry on the 17 Jul 03 and depending on which style of stop you employed would have seen an exit on 30 Jul 03. This move would have yielded around 50 cents in profit in 10 trading days. Keep in mind you could have chosen to trade the physical share or maybe a share future. Noel has covered this as a topic over the last few weeks in the Trading Tutors newsletters. For reference though the margin on a BHP share futures is currently is $775.
click chart for more detail
The two day retracement signalled the finish of trade 1 and the beginning of trade 2. I have previously covered the idea of markets retracing and then moving again. In this case the two day retracement gave us the signal that a new point C could be forming. Traders understanding the Safety in the Market trading plan would have seen a possible point C on the 29 Jul 03 and would have placed orders with their broker to enter long on the 30 Jul 03 following their entry rules. This example shows the need to anticipate point C, the following day the market confirmed point C and entry into the trade on the 30 Jul 03.
click chart for more detail
At the end of trade for this week BHP had closed up strongly at $10.08, at this stage our long trade is looking strong on relatively high volume, another good sign. However, as always we will be diligent with the placement of stops to ensure that as the market moves we will take any relevant action. As a final note it will be interesting to see where this trade takes us come next week, the trade is already underway and would be far too late to take an entry based on this analysis. So in short you should not be running out and taking an entry on Monday after you receive this newsletter. My thought would be to look out for the next ABC trade, as when a market trends this strongly, the next trade may only be around the corner.
Good Trading
Aaron Lynch
|