Noel Campbell Thank you for coming back to our Trading Tutors Newsletter in 2006 and I hope the festive season was a joyous occasion for all our readers. It certainly has been a festive period on global bourses with the Dow Jones Index cracking the 11,000 mark on the close this past week. Back in Trading Tutors Issue # 138 we were looking at the SPI200 and its most likely direction, which was up. This week’s article is in particular reference to the comment; “Once the market can break through the recent tops and has satisfied the appropriate close filter, it will be ‘all systems go’ for 5040”. Some of you may have asked, what is the appropriate close filter?
A close filter is a rule which helps eliminate the chance of a trader being caught buying or selling at a time that represents a purely technical break-out and not a genuine break of resistance or support. A double top is a clear example of a defined resistance level. If two tops are relatively close together in terms of time, say a week or two, then just the breaking of the tops with one ‘close’ above may be sufficient to take a trade. When you have a month or more between two tops then you need to bring in a ‘time’ factor. How many ‘closes’ above the old tops represents a confirmed breaking of the resistance level? For example, you may wait for 2 or 3 ‘closes’ above the old tops before accepting your buy signal as valid.
Chart 1 shows the daily bar for the SPI200 over the past 9 months. I have labelled a number of interest points. The first is the repeat of the 18-day pull-back that the market achieved back in June-July. An important note for students of the number 144 is that 18 is 1/8th of 144. Study Chart 1 for a moment.
Chart 1 – SPI200 Daily Bar Chart – June 2005 to Current
click chart for more detailThe days straight after the breaking of the double tops have been circled. This is where the reference to the ‘appropriate close filter’ is relevant. Either the day of the second or third consecutive close above the double tops was the safer buying opportunity. You need to watch January for short term interim tops, however for now it’s time to trade with the trend on the daily swing chart. Once the trend gets ambushed it may then be time to return to studying the retracement on the weekly chart, ready for the next ABC style pattern in the bigger picture that takes us up to a potential top in March.
Be sure to have your trading plan in writing and your notes for each trade completed in advance. I personally am looking forward to some terrific trading through 2006 and 2007 on a number of markets, but in particular, stock indices. All the best for 2006, it is time to bring it on!
Until next time…
Noel Campbell