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Well, if one price collapse is good, then two must be better. And this third one must be the best of all. It brings us back to within 14 points of where we started in late November.
On 3/17, from an opening at 8810, prices tumble 57 points to a low of 8617. They stabilize for two days and begin to rise, but are contained by the downward 45-degree line, line G, from PI.
A target Retracement Zone is plotted with a RZH of8804 and a RZL of8723. This could be only a minor reaction area, because stochastic values for the PI of 3/8 are in the neutral zone. (A better PI, indicated by stochastics being above 80, would be at 9114 on 2/8.)
Prices eventually may exceed this 8804 - 8723 zone because of a suggestive stochastic indicator. On 3/17, the day prices fell, %D can be seen to have turned sharply downward. On 3/22, stochastics again can be seen to have turned sharply - this time upward. Recall that this sharp turn - described as a "hook" - suggests a strong and sudden price move. Since this is the case, we would be looking for a buying opportunity somewhere in the 8723 - 8804 range.
Both stochastic values cross 20 to the upside on 3/27. Prices have previously closed at 8714 - above the minor 75-degree trend line F.
Normally, prices closing above a minor trend line and stochastic values indicating an uptrend, could be a buy signal. However, the risk-to-reward ratio for taking a trade is not good.
To go long above 8714 would require a stop at 8624, L2 crossing the day. Prices are approaching a Retracement Zone with possible resistance levels at 8723 and 8804. The minimum profit you could anticipate would be to 8724 (the RZL), or about $343. You're risking twice what you could anticipate making. Stand aside for a better buying opportunity.
Refer to Chart 43.
|File| Auto Train Uieu Scale Garni Options
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On 3/28 prices open and close above line G. On 3/29 prices close at 8802 (the RZH from Chart 43 is 8804). Stochastics are in mid-range with a strong upward bias. This could be the buying opportunity for which we've been looking.
On 3/30, you're long at the opening of 8808 with a stop at 8720 (LI crosses 3/19). A new Retracement Zone is drawn, with PI being the 2/3 high of 9116, P2 as the 3/12 low of 8610 and P3 at the 9116 level on 3/12. The RZH is 8924 and the RZL is 8829.
Prices escalate upward for two days, with a high on 4/3 of 8912. This high is only three points away from the 8909 midpoint of the new Retracement Zone. Prices retreat a bit, but still straddle the RZL of 8900.
On 4/5 %K is at 85 and %D is at 78. Stochastics are turning. Look back several months on the chart. The area of 8824 - 8900 seems to be a real resistance/support area. Draw a horizontal resistance line at each of these levels. In this area you're already up about $800 in three days. Time to get out. If you didn't sell at the mid-point of the Retracement Zone or let the 63-degree LI stop you out, you could have placed, on 3/30, a good-till-cancel sell order for
Stochastics are turning, prices stabilize for a day or two, but notice that the general trend of the market from September is still up. Any reaction occurring here may only be temporary profit-taking before the bull move continues. If the 8912 high of 3/20 turns out to be a significant high, another Retracement Zone at about 8724 can be calculated. This would be the place to buy the market.
Refer to Chart 44.
The winning continues:
TRADE 6: Sold on 4/3
Bought on 3/30 Total Points
$1056.25 profit in 2 trading days!
Previous profit balance Profit from Trade 6 Current profit balance
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Prices peak at 8914 on 4/7, with that point becoming P2. PI is the low of 8614 on 3/21 and P3 is at the level of 8614 on 4/17. A RZH of8802 and a RZL of 8712 are formed.
From P2 prices begin to drop. But with the strong, general uptrend of prices from mid-March, there is strong assurance of much higher prices.
Rather than waiting for prices to evolve and drawing trendlines and retracement zones until the price bars can't even be seen, try this.
Place an order to buy the market at the 50% level, with a stop at the 63% level of 8712.
Look at Chart 45. Stochastics broke 80 to the downside and prices began to consolidate on 4/10 and 4/11, above the RZH (50%). An order to buy the market at 8802 (RZH) with a stop at 8712 (RZL) could have been placed. This is a risk of about $700. If you want less risk, place your buy order at the midpoint of the Retracement Zone (8723) with a stop at 8712. Just realize that there is less chance of your order being filled.
On 4/13, your order to buy at 8802 is filled. Prices on 4/14 jump 30 points, closing at 8831.
Buying at the 50% level in this case would have gotten you in within four points of the low of the trend. A close near the top of a range without a gap on the following day (this occurred on 4/14) strongly suggests even higher prices are to come.
After 4/21, prices trend in an upward channel. Corresponding stochastics level off.
On 4/27 and 4/28 prices are reaching new highs for the trend. Stochastics are still leveling off. This same thing happened in mid-January. Anticipate a bear move due to this divergence.
From the minor reaction point of 4/14 at 8725, draw a 45-degree and 63-degree line. After the price jump to the 9000 mark and a reaction, prices seem to follow the 63-degree line closer than following the 45-degree line.
Great. Use the 63-degree line as a stop-loss line, with the 45-degree line as a change-in-trend line. Again, your concern is not WHEN to liquidate your position, but WHERE.
A good-till-cancel sell order is placed for 9005 on 4/26 (one point above the high of 4/20). At the same time, the stop order is moved up along the 63-degree line daily. The price-limit channel you've established is getting narrower and narrower.
The high of 4/26 is 9004. This is the same high of 4/20. There is apparent resistance. Stochastics are above 80. Time to get out.
On 4/27, your broker calls to tell you your order was filled at 9005. If it had not been filled, you would have been stopped out anyway on 5/1 at 8920, the price at which the 63-degree line crosses 5/1.
Prices are still in a 8908-9013 channel. Stochastics are consolidating, under 80. Again ... divergence. And from our previous experience, a sudden move in prices could be anticipated.
The long-term trend for Bonds is definitely up. The logical plan would be to buy at a 50% pullback. Use stochastics to assist in determining PI and P2.
PI is the significant low at 8614 on 3/21. Stochastics "hooked" under 20.
P2 is the 9013 high of 4/28. Stochastics peaked a third time during divergence. (Hint: things always seem to happen after the third time in futures trading.) P3 is at 8614 on 4/15. The RZH is 8814 and the RZL is 8724.
Don't turn the page yet. Mark down this trade:
Buy at 8814, stop at 8724, good till cancel.
Refer to Chart 46.
TRADE 7: Sold on 4/27
Bought on 4/13 Total Points
Previous profit balance Profit from Trade 7 Current profit balance
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If this last order you placed was in a baseball game, instead of the futures market, it would be called a "bang-bang" play. If it were in a popular beer commercial, it would be described as " . . . not getting much better than this."
On 5/10 your order to buy the September Bonds at 8814 is filled. On 5/11 Bonds consolidate for a day, moving only a couple of points up or down from the previous day.
And then on the 3rd day (I told you so) - bang, bang. Prices close at 9025. That's a move of 74 points and a gross return of $2312.50 per contract.
Well, that's fine, but IT DOES get better (much better) than this.
On 5/11 stochastics again "hook" in mid range, indicating there is more movement in this market. Recall that whenever a large move occurs (74 points in one day is a LARGE move), traders are going to take profits. And when that happens, prices may consolidate or decline before continuing. Unfortunately, there is no way a beginning trader has of knowing how much of either will occur. Now is the time to protect profits. There are two ways of protecting profits in a situation as this.
Drawing an 82-degree Gann Line will work, but may be impractical. It doesn't leave much room for the market to work. Instead, consider using a 63-or 75-degree line intersecting the day. This will give you the price level at which to place your stop.
If you're tired of angles, look at past price activity. It appears that from mid-December there has been an area around 8920 that has acted as resistance to rising prices, or support for falling prices. Then too, the most-recent high prior to this move was at 9012. Somewhere in between may be good.
It's a personal preference, refined with experience, that will serve you best. There are no fast and firm rules for setting stops.
Refer to Chart 47.
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During May and early June, stochastics remain oversold and divergent to prices. Certainly you want to maintain your position, protect past profits and insure future profits.
Stochastics are of little or no help in determining turning points. The G.E.T. software has generated a continuing signal to disregard stochastics. As prices are evolving, you will not know how much farther they may or may not rise, or the angle at which they will move.
Recall again that Gann called a lxl Gann Line the "Death Line." Breaking that line signals the end of a trend.
Use Gann's lxl theory this way. From every minor reaction during the uptrend, draw a 45-degree and 63-degree line. In Chart 42, using the 45-degree line results in stops of $1500 to $2000. Much too much. The 63-degree line, though, reduces stops to about $500 - $700. Much more manageable.
Should prices start becoming "too tight" for the 63-degree line, and you think they need more room to "move," use the 45-degree line for stops.
Such a situation occurred on 5/26. Prices reacted due to profit taking, stabilized for five days, and continued the bull move. After the big move of 5/30 to highs of 9300, stops could have been along the 63-degree line, again until they became too tight for prices.
TN A RISING MARKET, NEVER LOWER YOUR STOP FROM ITS CURRENT LEVEL.
IN A FALLING MARKET, NEVER RAISE YOUR STOP FROM ITS CURRENT LEVEL.
If, for instance, your stop is at 9400 using the 63-degree line and changing to the 45-degree line would reduce the stop to 9324, DON'T. Keep your stop at 9400 until the 45-degree line "catches up" to 9400.
You will always have trading situations in which you think you could have "gotten a couple more points" and think you were stopped out prematurely. "What could have been" does not make profits. "What already has been" does.
Using 63-degree lines to determine stops would have kept you in the market until 9516 on 6/15. (Stochastics, on this day, broke 80 to the downside.) Not bad at all.
Chart 48 is the entire price range of the September 1989 Treasury Bond contract that we've been trading. The final tally for profits is:
Bought on 5/10 @ 8814
Total Points = 7-02 = 226 points
$6962.50 in 25 trading days.
Previous profit balance = $ 6675.00 Profit from Trade 8 = $ 6962.50
Current profit balance = $13,637.50
$13,637.50 PROFIT EST SEVEN MONTHS.
That profit was realized from:
1) An hour or two of charting prices per night.
2) A little common sense, understanding the 50% Retracement Rule, and other basic Gann rules.
3) Trading only one contract in one market.
In Part XI, you'll see examples of using Gann's 50% Rule and Retracement Zones for various markets, years and time periods.
The more practice and the more charts you see, the more you'll find that the suggestions contained here work - time after time after time.
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The guidelines of THE W. D. GANN METHOD OF TRADING - A SIMPLIFIED CLEAR APPROACH can be used with any period of trading- from 5-, 15-, 30- and 60-minute tick charts for intraday trading, to daily, weekly, and even to monthly bar charts.
The rules can be used in agricultural, financial, currency, or any other markets. Price projections can be made without a computer or even a calculator. The procedures can be refined to any number of trades or contracts you wish to make.
THE W. D. GANN METHOD OF TRADING - A SIMPLIFIED CLEAR APPROACH, is not a be-all-end-all system of trading commodities. It will not bring overnight wealth. Such a system does not exist.
But with a little effort and a reasonable amount of paper trading to learn the principles involved, Gann's methods will give you a sound understanding and basis for earning consistent profits.
The following charts are of the December, 1989, S&P 500 contract.
TRADING THE S&P 500 CONTRACT
Chart 49 begins on 6/30 at a low of32200. Prices begin to rise. The possible uptrend is confirmed on 7/5 and 7/6 by stochastics, which appear below the bar chart.
Price momentum "stalls out" between 7/20 and 7/24. Prices are in a channel between the high of 34470 on 7/20, and the low of 33850 on 7/23.
On 7/27, prices gap to the upside from the previous-day's high of 34500, (by opening at 34582 and reaching a low of only 34530).
Prices continue the uptrend until 8/7 and 8/11, when equal highes of 35770 (8/7) and 35780 (8/11) are reached. On 8/11 prices close at 35111 with stochastics confirming a possible change-in-trend. This is important.
Stochastics remain overbought between 7/13 and 8/10. There appears to be no clear indication for future price direction.
Prices should now turn down . . . BUT HOW FAR? Based on our method - to a zone of 35770-35820.
Net profit from Chart 49 $9,400
Total net profit $9,400
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