Putting It All Together

This section covers eight trading sequences (which Gann called "campaigns"). The contract is September 1989 T-Bonds. All the information that will be used for trading has been covered in the previous nine sections. The trades were taken as examples of using Retracement Zones, Stochastics and Gann geometric angles.

DO NOT LOOK AHEAD TO ANY PAGES BEFORE YOU REVIEW EACH PAGE AND UNDERSTAND WHAT WAS DONE, AND WHY. THIS IS IMPORTANT. IN REAL TRADING YOU WILL NOT HAVE THE BENEFIT OF LOOKING FORWARD AT MARKET PRICES, COMING BACK TO CURRENTPRICES AND SAYING "OH YEAH, I'LLDO SUCH-AND-SUCH BECAUSE ..

The following trading rules will be used. These same guidelines can be used in real-time trading as well:

1) Locate points that qualify, by definition, as PI, P2 and P3.

Unless you know Gann or Elliott Wave techniques, PI and P2 turning points can be identified by definition and supported by stochastics.

1) Stochastics crossing under 20 and turning up suggests a rising market.

2) Stochastics crossing over 80 and turning down suggests a falling market.

Determine Pi and P2 points from the "under-20" or "over-80" stochastic crossover points.

2) Confirm that a new price trend from P2 is starting. The start of a price trend is confirmed when:

1) Both stochastics have been less than 20 (from bear to bull) or greater than 80 (from bull to bear), have crossed over and are reversing direction, and

2) Prices have reversed direction and closed above (or below) a 45-degree line from a previous minor reaction point before P2.

3) In a bear market, lower highs are being made.

4) In a bull market, higher lows are being made.

3) Determine P3.

P3 is at the PRICE level of PI and the TIME point of P2.

4) Draw LI and L2 from P2 and L3 from P3.

LI is a 63-degree line and L2 is a 45-degree line. L3 is a 45-degree line.

Make sure the protractor is 90-degrees to time at P2 and horizontal to the price level at PI. (See Charts 31 and 32.)

Chart 31

Ret Cerebellar Zelpi Degree

Draw the Retracement Zone High and Retracement Zone Low limits. The intersection of LI and L3 is the 63% Retracement Level. The intersection of L2 and L3 is the 50% Retracement Level. Both lines must be horizontal and parallel. (See Chart 33.)

6) Estimate the Gann geometric angle that prices are following. Trending prices should follow a 45-, 63-, 75- or 82-degree Gann Angle. Draw several angles from P2 until prices establish a trend. Don't draw this line too "tight" for prices - prices need room to move.

7) Take a long or short position after a trend is established. A trend is established when:

1) Prices, on a closing basis, break a previous trendline from the opposite direction of the new trend.

2) The new trend is confirmed by supportingindicators, such as stochastics.

8) Place stops along S5. Use either current-day or previous-day price levels.

9) As prices enter the Retracement Zone, draw S5 from a minor low (if prices are rising) or high (if prices are falling).

Prices crossing S5 could suggest a change in trend. Anticipate a possible reaction at or near the midpoint of the Retracement Zone. If one occurs and prices close across S5, liquidate your position.

If prices advance through the Retracement Zone, the next price target could be at the 75%, and then the 100%, level.

10) Look for a new entry point.

If prices reverse in the Retracement Zone and your position is liquidated, consider a new trade:

1) When prices close outside the Retracement Zone;

2) When the new trend is confirmed by stochastics.

11) A 26-degree line from P2 as S4 could be a good "first line of defense" stop-loss line.

This line (unless there's a substantial price jump) is your initial stop-loss line as prices exit the Retracement Zone.

Hint: A good stop-loss price might be one point above the Significant High or one point below the Significant Low. Keep this stop until AFTER the first minor reaction. Minor reactions after a Significant High or Low may cause prices to react almost, but not quite, to the Significant High or Low.

12) In general, be flexible in your objectives. Anticipate several different price reactions.

13) Never assume you "have to" make a set amount of money on a trade. Take profits whenever you can.

In the following eight trades, $100 per trade was allowed for expenses. Point value for Treasury Bonds is $31.25.

In November 1988, you begin watching the September 1989 contract for T-Bonds. There is an upward trendline from early September through to November. Bonds peak around 9000 and decline. Stochastics also are declining.

In mid-November, stochastics cross 20 to the downside and prices begin to churn. A low of 8600 is reached on 11/25. both prices and stochastics begin to rise from that point. Stochastics break 20 to the upside.

By definition, the high of 11/1 at 8928 qualifies as PI. The low of 11/25 at 8600 qualifies as P2. P3 is on 11/25 at the 8900 level. LI, L2 and L3 are drawn.

A Retracement Zone results with a RZH of 8820 and a RZL of 8800.

Remember, this is ONLY A TARGET. THERE IS NO LAW THAT DICTATES OR GUARANTEES THAT PRICES WILL ENTER THIS ZONE; ONLY SOME ASSURANCE.

Onll/29, prices close above L2 from P2, as well as above the minor reaction point A of 8729 on 11/16. Stochastics have not broken 20 to the upside.

On 11/30, prices open and close above L2 as well as above the two 45-degree lines from reaction points PI and A. Stochastics are above 20 and rising. These 3 indicators suggest a bull move. You decide to buy on the opening the next day.

Prices open at 8715 on 12/1/89. Your stop is placed at 8612 (the point at which 12/1/88 crosses SI, a 26-degree line from P2.) This is an unusually wide stop, but recall that prices need room to move before they can establish a trend. A closer stop would be the price level at which L2 crosses 12/1, or 8620.

Refer to Chart 34.

(FileI Auto Train Miew Scale Garni Options SET Cop'^r iftht <e> 1183 v2.5 Fl = Help Stochastic

(FileI Auto Train Miew Scale Garni Options SET Cop'^r iftht <e> 1183 v2.5 Fl = Help Stochastic

Oc t Nov fDAQOQ Thursday 12/01/88 3100

lJttHttJ Opens 8115 Hi^h™ S12© Low- 8115 Close» SHS5 Ose:

8 35 25

=|00S 1000 812M 811© 8108 8100 382M 881© 8808 8800 812H 811© 8108 8100 8©2M 8©1© 8608 8©00 852M 851© 8508 8500 8M2H

100 15 50 25

Oc t Nov fDAQOQ Thursday 12/01/88 3100

lJttHttJ Opens 8115 Hi^h™ S12© Low- 8115 Close» SHS5 Ose:

8 35 25

On the evening of 12/2/88, you chart prices and find that they have fallen - A LOT, to a low of 8620. You shake and sweat, get control and realize you're still in good shape.

Stochastic %Kjogged a little, but %D is still upward. SI saved your position. You're down about $500, BUT ONLY IF YOU SELL.

Monday, 12/5/88, was an "inside day" - that's a good sign for you. Prices are up - and so should be your stop. Move your stop to 8615, the price at which SI crosses 12/5/88.

On 12/6, youbecome a believer when you see that prices have closed at 8821! You're up over $1000 and want to call your broker to sell. But wait - re-evaluate your position.

First, because of such a big move, anticipate some churning and draw both a 75-degree and an 82-degree line from the low of 12/6, for future stops. Notice that stochastics are still in the neutral zone.

Next, move your stop to a price level that will insure profits but leave room for future price activity. This might be the level at which the 82-degree line crosses 12/6, or the RZL of 8800.

On 12/7/88, prices straddle the RZH, opening at 8824 and closing at 8819. The 82-degree line is a little tight, so you use the 75-degree line for stops. This line crosses 12/8/88 at about 8805. Move your stop to 8805 for the market of 12/ 8.

On 12/8/88, %K has turned down from 80. %D is beginning to turn. Move your stop to the RZH of 8820 for trading on 12/9. Anticipate a downturn. (P.S. The low of 12/8/88 was 8807. Using Gann geometric angles, our stop was at 8805.)

On 12/9/88, you're stopped out at 8820.

For the next two days prices oscillate around the RZH, but there is no clear indicator for taking a position. Stand aside. Notice though that the highs for 12/ 7 at 8906 and 12/12 at 8905 were contained by S4 from P3.

Calculate a new Retracement Zone. PI is the high of 12/12 at 8905. P2is the low of 11/25 at 8600, andP3 is 8600 on 12/8/88. This results in a Retracement Zone with a RZH of 8718 and a RZL of 8702, into which prices may trend for another buying opportunity.

Refer to Chart 35.

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