RETURN OF THE BEAR?

A Free Technical Analysis E – Magazine for Traders of Financial Markets

Volume 2, Issue 3 MAY / JUN 2010

When do the probabilities favour success?

A powerful tool for traders.

A Forecast for the End of the Bull?

Do Gann's timing techniques indicate a change in the markets is near?

A TIME FOR CHANGE

DIVERGENCE

WRITTEN TRADING PLAN

RETURN OF THE BEAR?

www.EducatedAnalyst.com

The Educated Analyst | MAY/JUN 2010

5 A WRITTEN TRADING PLAN

There are a number of questions traders ask themselves before they make a trade. As a professional trader for over 30 years, Ray Barros covers some of the Essential Elements of trading the markets by not only asking these questions, but showing you how to find the correct answers.

9 A TIME FOR CHANGE –

a forecast for the end of the bull? In this article Alan Oliver covers one of Gann’s greatest discoveries, the Time Factor and uses the First Range Out method to analyse the S&P500.

12 THE IMPORTANCE OF

STRUCTURE IN YOUR TRADING What’s the most important factor to consider when trading FX or making trading decisions? Brad Gilbert answers this fundamental question and reveals some of the building blocks to trading success.

15 TRADING FOR PROFIT

WITH CONTRACTS FOR DIFFERENCE In any market the higher the risk, the greater is the knowledge needed to manage that risk. However, many traders mistakenly believe they already possess the required knowledge and skills to trade the highly leveraged CFD market. In this article Dale Gilham will introduce you to a trading strategy that can generate good results when combined with solid money management rules.

20 LESSONS IN GEOMETRY Dawn draws on her 47 years of experience in trading the markets with Technical Analysis to reveal some of chart styles and indicators she has used, and that will serve you well as you build a good trading plan.

25 DIVERGENCE –

a powerful tool for traders In this article Robert Lennox will clarify how to recognize and use both a Bullish Divergence and Bearish Divergence. It is aimed at people who are new to technical analysis and those who wish to re-visit some basics. It includes some useful tips for people wishing to trade … rather than just analyse.

28 SINGLE IN/ SCALE OUT

METHOD -PART 2

In the second part of this article Ross covers in more detail the Single In / Scale Out method of market entry and exits, including liquidating the last contract, and calculating / using a 3 bar trailing stop.

32 LOOKING BACK WITH

W. D GANN – LONG TERM CYCLES One of the things W.D Gann knew better than most was the importance of time, and the profound impact cycles could have on the market. In this article Olga Morales reviews some of the work Gann did with the cycle of 33 years.

CONTENTS THE EDUCATED ANALYST MAY/ JUN 2010 - VOLUME 2 Issue 3

The Educated Analyst | MAY /JUNE 2010

i and welcome to the next edition of the Educated Analyst.

As I write this editorial we are in the middle of the Greek sovereign debt crisis, and although a bail-out has been approved, the turmoil and its effect is causing markets around the world to fall. Couple that with the Australian proposed RSPT ("Resource Super Profits Tax" or "Rudd's Shameless Plundering Tax") which while it is only proposed legislation, has completely taken the wind out of the sails of the resource sector in not only Australia but also other parts of the world. Finally, although the situation with Dubai World has now been resolved, with creditors agreeing to terms for restructure, there is a cloud over some other government backed companies. Creditors would often lend to state-linked Dubai companies on the understanding that the debts would be government guaranteed. This was not the case, as they found out with Dubai World, so there is the very real chance that other state-owned companies, like Dubai World, will have financing troubles when their debts come due. From all of this there are enough fundamental reasons to believe that the magic bull run out of the GFC may be coming to an end. I have to be honest, I've been shaking my head at that way the market has been moving since last September, sure that we had to enter into a new bear phase anytime, but it has not happened so far. So is the bear coming? The more it hibernates, the worse it will be. But what we really need to see are some Technical reasons to back this up. In this issue of the Educated Analyst, we have articles that show how using Fibonacci and Gann there is a good technical argument that we are about to see the turn. As always we have tried to source articles that will help you with not only your trading decisions, but also trade management and psychology, as well as managing risk. I trust that you will find these articles of benefit as our aim in providing this service is to equip you to be a better trader. I am a big believer in the power of mentors and hearing about the stories of people who have been successful in any endeavour in life. In the next issue we would like to introduce a "True Trader's Testimony" section where we would invite you to write about your trading story. We particularly want to hear real stories where people are willing to be honest about their failures and how they overcame those. Too many traders just want to talk about the winners and forget to mention the losers. If you would like to send through your story, please email it through to [email protected]. Stories should be around two pages. Not all stories submitted can be used. I hope you enjoy these articles and also the interesting time ahead in the markets. All the best, Mathew Verdouw Editor The Educated Analyst

EDITORIAL

MAY/ JUNE 2010 - VOLUME 2 Issue 3

Disclaimer:

The Educated Analyst, its staff, officers and contributing authors cannot be held liable for trading decisions that you make as a consequence of education that

you receive from the articles.

Trading and Investing involves risk and has the potential for large financial losses. The content provided in The Educated Analyst is of a general nature and

does not take your personal situation or financial objectives into consideration.

You should consult with your broker or financial advisor before acting on any of the content in The Educated Analyst.

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The Educated Analyst | 5 A Written Trading Plan MAY /JUNE 2010

In this article I’ll set out what I believe to be the

first element of a discretionary trading plan.

ESSENTIAL ELEMENTS

Identification of the Trend of a TimeFrame

This is a major component. The purpose of a plan

is to indicate when the probabilities favour

success. Identifying the trend of a timeframe and

asking the questions below, provide us with our

trading strategy i.e. with an action that has the

blessing of our probability assessment.

QUESTIONS:

1. What is the trend of the trader’s

timeframe? Is it likely to continue or

change? And

2. What is the nature of the current structure

– directional move, simple correction or

complex correction?

To answer these questions, I use Barros Swings.

Barros Swings are similar to Gann Swing Charts

and Arthur Merrill’s Filtered Waves; but they are

different to Gann in that they have a price

component and they are different to Filtered

Waves in that they have a time component.

Barros Swings

show the trend of

calendar

timeframes –

1. Daily (intra-day, 5-period)

2. Weekly (daily 5-day),

3. Monthly (daily 18-day)

4. Quarterly (weekly 13-week) and

5. Yearly (monthly 12-month).

If we define uptrends as higher swing highs and

higher swing lows, downtrends as lower swing

highs and lower swing lows and sideways trends

as about equal swing highs and about equal swing

lows, then by using Barros Swings we can at once

place any trend in perspective.

But, before I show some examples, I need to

mention one more idea that I use: as a rule of

thumb, the line direction of a timeframe will

define the trend of the next lower timeframe; and

therefore, the correction in a timeframe will

probably show as a change in trend in the next

lower timeframe.

That out of the way, let's look at some examples.

Let’s start with the S&P.

Figure 1 shows the S&P (Cash). One question that

used to cause me some headaches: how to

determine how much data to have on my screen?

FIGURE 1 S&P

A WRITTEN TRADING PLAN

With Ray Barros

Source: Market Analyst 6 (www.Market-Analyst.com)

http://images.google.com.au/imgres?imgurl=http://4.bp.blogspot.com/_49PrmhLYWuI/SI0kX8aJsjI/AAAAAAAAATI/JrP5zA4Xd3g/s200/20080716_raybarros.gif&imgrefurl=http://yyklse.blogspot.com/2008/07/learn-from-mr-ray-barros-professional.html&usg=__P32TQUmU99NYA2ZKlGcJ8EjhGtw=&h=166&w=154&sz=13&hl=en&start=23&tbnid=rbimAOOev6VWgM:&tbnh=99&tbnw=92&prev=/images?q=ray+barros&gbv=2&ndsp=21&hl=en&sa=N&start=21

http://www.market-analyst.com/


Some technicians suggest an arbitrary number e.g. 8.5 months for a Daily chart. My solution is to say

that we look at the data from the most recent higher timeframe swing extreme. In this case, I’d treat the

beginning of the current 18-day structure as the low of March 6, 2009 (666.80) – this is the most recent

confirmed 13-week low (black). The 13-week confirmation occurred when the 13-week line turned up.

Figure 2 shows the 18-day swing (red) structure since the March 09 low.

FIGURE 2 S&P Cash -

18-day Barros Swing

It shows that the last

point of support for

the 18-day swing’s

uptrend is 1044.50.

Once that low is taken

out, whatever you

have in the 18-day

trend, you don’t have

an uptrend.

Figure 3 shows the

DX (US$ Index) trend

since the Nov 26.

2009 low. But where’s

the 18-day swing (red

line)? The answer is

under the Black Line (13-week equivalent). In other words, the quarterly swing is so strong that it’s

preventing any 18-days swings. (Only 5-day swings [blue, weekly trend] are in evidence).

FIGURE 3 DX

Since the 13-week line is

up, we assume that the

18-day trend is up.

Figure 4 is a Crude Oil

example. We see an

uptrend since the Dec 24

2008 low. The last point

of support rests at

69.825 – a break of that

price and whatever trend

we have in the 18-day

swing, it’s not an

uptrend since we have

broken the sequence of

higher high and higher

lows.


Source: Market Anayst 6 (www.Market-Analyst.com)




FIGURE 4 Crude Oil

So Barros Swings help identify the trend of a

timeframe. How do they help answer the

question: continuation or change?

The main way is through a number of change in

trend patterns. The four main patterns I use I

call, Lagging Change in Trend Patterns; one of

these must be present at

any change in trend. Three

involve breach of a previous

swing extreme; one, The

Upthrust, allows for early

entry. It's important to

understand that because

the swings identify similar

swing magnitudes, all

changes in trend are easily

identified:

They involve the breach of

a prior swing low in an

uptrend and a prior swing

high in a downtrend.

Once this occurs, whatever

you have in that timeframe,

you no longer have an

uptrend or downtrend. Of

course, the breach may simply be the result of a

higher timeframe

correction. If the

higher timeframe finds

support as soon as the

lower timeframe

breach occurs, the

higher timeframe will

resume its trend and

will drag the lower

timeframe with it. This

results in a false

breakdown or

breakout.

But the false

breakdown (breakout)

becomes clearly

identifiable through

analysis of the higher

timeframe swings. This adds a dimension to our

analysis that is not normally available.

Let's look at an example of an Upthrust Change

in Trend. At time of writing, an Upthrust has

setup in the S&P (Figure 5).

FIGURE 5 S&P Change in Trend






Figure 5 shows the elements of the pattern:

1. A sustained prior trend - in this case an

upmove since March.

2. The S&P has broken above a previous

high, 1150.25 and now has a high at

1156.72. The new high is currently within

the parameters I set for a 'false breakout'.

3. There is a visible Upthrust Pattern on the

18-day swing (red line).

4. The quarterly swing line (black line) is

statistically overbought.

So what do I mean when I say the quarterly line

direction is overbought? This brings me to

another way Barros Swings help answer the

question: continuation or change?

Change in Trend Patterns are reactive, we only

know that a change in trend pattern has

happened after the event. Statistics of the higher

timeframe line direction provide a filter to change

in trend patterns. This idea makes use of the

principle I mentioned earlier: that " the line

direction of a timeframe will define the trend of

the next lower timeframe; and therefore, the

correction in a timeframe will probably show as a

change in trend in the next lower timeframe."

In this case, the 13-week swing up has moved

mean +3 standard deviations of a normal

impulse move. That being the case, the statistics

for the 13-week swings are telling us that there

is a high probability that the 13-week line will

correct and in doing so, my trader's timeframe

(the 18-day swing) will change its trend.

Theoretically a mean +3 standard deviation move

has less than a 1% chance of continuing without

a correction. But as Keynes said, the markets

can remain irrational for much longer than you or

I can remain solvent. In other words, the market

can move in one direction way past any

theoretical extremes; for example Crude Oil at

one stage moved mean + 6 standard deviations.

That's why I wait for a change in trend pattern to

form before assuming a trend change has

occurred.

There are two ways then for Barros Swings to

help answer the question: continuation or

change?

1. Through change in trend patterns, all of

which are reactive in nature, and

2. Through the statistics of the next higher

timeframe swings. These are early

warning signals and filters for the change

in trend patterns.

In later articles I'll conclude this topic and cover

the other elements of a written trading plan.

About Ray Barros

Ray Barros is a professional trader, fund manager, author,

and educator with over 30 years experience in the markets.

Ray is the Author of 'The Nature of Trends’ and has appeared

on Singapore’s Chanel News Asia, Bloomberg and CNBC. Ray

has been regularly featured in regional newspapers and

publications like Sydney Morning Herald, Your Trading Edge

Magazine, Business Times, and Smart Investor. The interviews

have focused on his trading strategies as well as his opinions

on market sentiment. They have also dealt with his track

record, trading philosophy, how and why he got into trading,

and what advice he would give to those wishing to become

traders/investors.

Ray can be contacted through his website

www.tradingsuccess.com.

http://www.tradingsuccess.com/

The Educated Analyst |9 A Time for a Change MAY/JUNE 2010

have often wondered how dedicated W.D.Gann

must have been to analyse markets for over 50

years without the benefit of our modern day

computers. To draw all of the charts by hand, then go

through each bar and analyse figures, angles,

retracements, time counts…it truly was a remarkable

feat and the techniques contained in his body of work

can still be used in today’s electronic markets.

After all, humans haven’t changed all that much since

Gann’s great discoveries…we still harbour greed, fear

and panic and it takes extreme dedication and discipline

to overrule these basic emotions when trading with our

real money on the line.

One of Gann’s greatest discoveries was the Time factor.

Gann discovered the movement on the horizontal axis

was even more important than the price movement on

the vertical axis. Even today many people struggle with

this concept, mainly because the Time factor is divided

into several basic concepts.

Here today we can use part of Gann’s work with the S&P

500, a market created long after Gann’s passing, but

nonetheless an excellent example

of his technique at work in our

time.

Gann told us of a technique using

what he called the ‘first range

out’.

Here on the next chart of the S&P

500 we can see the major top

that formed in October 2007, the

beginning of the Global Financial

crisis. The pullback was as

spectacular as it was devastating

to many traders worldwide.

Eventually though, the market did

find support to end this

downtrend and we have marked

the end as point A, shown here using the Time Price

label tool as March 6, 2009 at a price of 666. How ironic

that the devils number should be the point of a reversal

to higher prices…

From point A, the next major high, marked point B,

occurs June 11, 2009 at 956. This is the next major high

because point B represents the top before a low goes

lower than the previous low. A Gann swing chart will

show this effectively, but only after point B does a low

go lower than the previous low.

Gann would have made a careful record of the details of

the first range out, the rally between point A and point

B. Note that the distance in price is 289 points and Time

between the two points is 67 bars or trading days.

It was Gann’s discovery that the first range out was a key

pointer to the next rally in the bull market campaign if

the market does eventually trade higher than point B. In

other words, he found that the subsequent rallies in the

market would be relative to, and based upon, the first

range out from the major low.

A TIME FOR A CHANGE A FORECAST FOR THE END OF THE BULL?

With Alan Oliver




Now we look at the next chart below and we can see

the subsequent rally from point C to point D. Again,

there is a strong upward trend that is ended at point D

where a significant pullback occurred; indeed some

called this move a correction rather

than a retracement.

Point C is July 8, 2009 at a low price

of 869. Point D is a high point Jan 19,

2010 at a high price of 1150. Now

we can see exactly what Gann meant

when he said the first range out is a

guide to future movements, as the

Time count between point C and

point D is 134 trading days, exactly

double the time count of 67 days

between point A and B.

Whilst the time count is exactly

double, the price is very close to

being equal, with 289 points

between A and B and 281 between C

and D. This is close enough for

traders to say that the market

repeated the first range out in price in double the time.

The fact that markets do this time and time again is

remarkable, and Gann knew these facts in his trading

career, hence his ability to be selling when everyone else

was buying new highs.

It also gave him the extraordinary ability to forecast

future highs and lows based on previous market

movements. To give you a

current example of how he did

this, we move to the final chart

above.

Now we can see the final chart

with a projection I made

several weeks ago based on

Gann’s work. I will be glued to

my charts around May 13

2010, as this will be the repeat

of the first range out. Point E is

the last major low formed

February 5, 2010 and 67

trading days from this low

marked as point F, the repeat






of the time count from the first range out, brings us to a

potential high May 13, 2010.This could be the end of the

bull market rally we have seen since March 2009 and if

so, I expect to see a considerable retracement from this

date. At the very least it should be a minor retracement

but perhaps we will see the repeat of the 2007 bear

market campaign if the situation in the Europe region

isn’t resolved or perhaps deteriorates… Since this article

was written, the British general elections were

announced to be held on May 6. If the election changes

government or a hung parliament is the outcome, the

effects could be disastrous for everyone, and this may

have the effect of bringing our forecast to fruition.

About Alan Oliver

Alan Oliver is a full time trader and private educator. Early in

Alan’s career he worked for two major Australian banks where

his interest in the markets began. After developing and

successfully honing the skills of a full time trader, Alan left the

workforce to trade full time which is what he has been doing

ever since. Most recently Alan has written a book on his

favourite subject of Fibonacci and the Golden Harmonic ratio.

Alan has travelled extensively, been invited as a key speaker to

many countries including: Australia, Hong Kong, Malaysia,

Singapore, Thailand and China.

Alan also runs a web site (named after his book) to assist

traders www.tradingwithgods.com.

http://tradingwithgods.com

http://market-analyst.com/professional-edition.html

The Educated Analyst | 12 The Importance of Structure in Your Trading MAY/JUNE 2010

s an educator I am often asked “What’s the

most important factor to consider when

trading foreign exchange or making trading

decisions”?

My answer is always the same: “There is not one key

important factor. It’s the combination of a number of

trading principles as well as understanding the market

itself. Strict capital management and a meticulous

Trading Plan are critical for your success”.

So bearing that in mind, it’s no easy task starting out

trading the Forex market without experience and

knowledge behind you.

To begin with, new traders to the foreign exchange

market all suffer from the same debilitating emotions of

fear and anxiety.

They all want to make money but just don’t know where

to start, and because of this inexperience, as soon as

they place a trade they run straight into their darkest

fear…losing their money.

The fear of losing your money is very powerful and often

leads novice traders to closing out trades as soon as they

put them on. It can overwhelm you and often leave you

breathless and your heart beating a hundred miles an

hour. It’s easier to close out the position than suffer the

pain and anguish a second longer! But it doesn’t have to

be like this. You can manage this side of trading by

learning from experienced traders.

What’s the secret? Well it isn’t a secret really; it’s just

sound professional capital management. Knowing that

you’re not going to go broke is a major factor in

retaining composure and allowing you to make

confident, rational trading decisions. Your capital

management system should protect you during the bad

times and benefit you when the going is good. Once it’s

been put in place it’s imperative you stick to it,

otherwise you’ll literally be rolling the dice with your

capital. You’ll quickly go from being a trader to a

gambler and believe me there’s a big difference, and

only one outcome – big losses!

Now you have your capital management in place you’re

ready to take the next step and work on your trade plan.

The one key differentiating factor between a trader and

a gambler is the ‘Trading Plan”. Anyone can have a guess

and be lucky every now and again, but to be successful

over the course of time you need to have a specific trade

plan in place which you don’t sway from.

Your trading plan incorporates your entry level, your

stop loss (s/l) level and take profit (t/p) level. Your trade

plan saves you from yourself. If you don’t have a trade

plan you will fall into the trap of running your losses

twice as far as you initially expected to, and taking profit

half the distance you intended on. Understand you are

your worst enemy in this environment.

The combination of your capital management and

trading plan makes the whole trading process

systematic. All you have to do now is identify the key

entry levels. Once they are identified you simply put

your trade plan into action and let the market do the

work! (It’s even better to turn your computer off

altogether).

“Ok that sounds easy” I hear you say. Well it is, once you

know what to look for when identifying your entry

levels. A combination of technical analysis and

fundamental analysis is imperative. Using just one or the

other is a sure recipe for failure. They both work in

tandem and if anyone tells you differently, you can be

sure they have never worked for an Investment Bank

trading FX!

The Technicals are your global guide to the markets, so

it’s extremely important you have a professional

technical analysis package that takes out the potential

for human error. I’ve used numerous trading platforms

which all offer free technical analysis software, and I can

honestly say not one of them is up to the task of charting

the currencies accurately and professionally. The

The Importance of

Structure in Your Trading With Brad Gilbert

The Educated Analyst | 13 The Importance of Structure in Your Trading MAY/JUNE 2010

platforms primary purpose is to get you to trade. If

you’re out by 5 or 10 points it can be the difference

between being success and failure, so choose wisely.

Remember you’re trading as a professional now, so think

like one. Spend the cash and get the best you can.

Now did I hear you say that “this is easier said than

done?” Well that’s true, there is more to it. It’s not just

about buying and selling and hoping for the best.

Trading successfully involves utilising a number of

strategies for different occasions. The market is a living

organism and thus is always evolving and changing. If

you stick to one strategy you will get chopped up time

and time again. Generally there are five key strategies

you need to incorporate with your trading plan. The

currencies give off a number of key signals and these

basically lead you into the particular strategy you should

use. At first you will be scratching your head as to which

one you should use, but over time it will become second

nature to you and you will put them into play without

even thinking about it.

What are the particular strategies you may ask? Well

that’s where the experience of your educator comes into

play. It’s crucial you get the right training from

experienced trading professionals. Most educators in the

market place these days don’t have any professional

experience trading. By ‘professional’ I mean actual

experience trading on investment bank trading desks.

They call themselves “professional traders” since they

now do this as a profession. There is a massive

difference! Bare in mind your success stems from the

education you receive so be careful and check out your

educator’s credentials before you sign up to any so

called ‘professional courses’. Many novice traders I have

spoken to have learnt the hard way!

The last thing is, don’t expect to make millions

overnight. Have realistic expectations. By that, I don’t

mean for you to lower your expectations, just remember

it takes time and experience to implement your capital

management system and trading plan consistently and

successfully.

About Brad Gilbert

Brad Gilbert is the founder of Traders 4 Traders. Brad has

been a professional Forex Trader since 1990, having

worked for Citibank, Commonwealth Bank of Australia

and Toronto Dominion Securities for a total of 17 years.

He graduated from Sydney University with a Degree in

Economics and after starting as a Forex trainee trader he

worked his way up through the ranks to be an FX Trading

Team Leader and member on the Australian Foreign

Exchange Committee. He has lived in Sydney, London,

and New York and traded in every major financial centre.

He currently resides on the Northern Beaches of Sydney

and has been trading from home for the past 3 years.

The Educated Analyst |15 TRADING FOR PROFIT MAY /JUN 2010

The desire to trade Contracts for Difference (CFDs) often

stems from the notion that a trader will become much

wealthier, in a shorter time, from this than from any

other method of trading. While this is possible, in my

experience most traders who have achieved such

success have done so through sheer luck rather than by

applying solid trading techniques.

In any market the higher the risk, the greater is the

knowledge needed to manage that risk. However, many

traders mistakenly believe they already possess the

required knowledge and skills to trade the highly

leveraged CFD market. As any trader who earns a living

from the share market knows, to be successful trading

CFDs in the long term you need to have the knowledge,

the skills and yes, maybe a little luck - although the

harder I work at my trading the luckier I become.

You need trading strategies that will ensure your long

term success. In this article I will introduce you to a

trading strategy that can generate good results when

combined with solid money management rules. I am

amazed at how many people attempt to trade CFDs with

a trading plan that is a disaster waiting to happen.

Traders commonly use a trading rule or technique out of

context, usually in regard to short term trading. They

learn something in a book or course that they think is

fantastic, and then they attempt to apply it to their

trading - without testing whether it works.

However, it is important never to test anything in the

market until you have back tested it on the stocks you

intend trading. What I will share with you works. But you

must practice it before applying it in the market.

Developing a short-term CFD trading plan

You must consider two major elements: the medium to

longer term trend of the stock or market you are

trading; and the use of short term entry and exit rules to

manage the trade.

Regardless of your trading strategy, it is important to

consider the next larger time span to the one you are

analysing, as price and time will usually always conform

to the next larger trend. If you are analysing a daily chart

you need to respect the larger trend on the weekly

chart. Similarly, if you are analysing the weekly chart you

need to respect the trend of larger degree on the

monthly chart.

Your analysis should be completed on the weekly chart

to establish the direction of the trade. The daily chart

just provides your entry and exit for trades of up to a

few weeks once the direction is established. If you fail to

trade with the longer term trend, you will not only be

inconsistent in your trading outcomes, you will be taking

higher risks. Rules that can assist you in determining the

longer term trend include Gann or Dow Theory, trend

lines and cycles analysis.

Once you have analysed the longer term trend, you need

to determine entry and exit rules and your money

management strategy. I have found successful entry and

exit rules for profitably trading short term include

Gann’s counter-trend theory, Dow Theory and Gann

Swing charts.

Gann swing theory

This is a very simple technique that helps to dramatically

increase the probability of success and to reduce the

level of risk you take each time you trade. Swing charts

are a very simple visual aid to assist in determining the

strength (momentum) and direction of a stock (or

market) with regard to price, thus keeping you out of

losing trades. While swing charts are best used when

combined with other analysis tools they can be used in

isolation, a technique referred to as ‘swing trading’.

Swing charts also enable you to analyse a great range of

data at any one time, allowing you to study long periods

of time more easily.

TRADING FOR PROFIT

WITH CONTRACTS FOR DIFFERENCE Dramatically increase your probability of success while reducing your level of risk, trading CFDs both long and short.

With Dale Gilham


Entering a long trade

Once the direction of the stock you are

analysing is confirmed on a weekly

swing chart by the presence of higher

swing highs and higher swing lows, you

buy (trade long) when the price rises

$0.01 above the previous swing high

after confirmation of a higher swing

low as shown in figure 1.

Figure 1: Weekly swing chart –

Buy signal example

In the example in figure 1 the stock confirmed a higher

swing low at $1.05; then rose to break through the

previous swing high of $1.30. When this occurred you

could buy the stock and enter into a long position at

$1.31.

Figure 2 is a weekly swing chart of Sonic Healthcare

(SHL), which demonstrates where we entered a long

trade based on Gann Swing Theory. Notice that after

confirming a swing low at point 1, SHL moved up

strongly to confirm a swing high at point 2. At this point

we couldn’t buy because the stock had not confirmed a

higher swing low. SHL then moved down to confirm a

higher swing low at point 3 before turning to trade up

above point 2, triggering an entry.

Figure 2: Weekly Swing Chart – Sonic Healthcare

Managing a long trade and setting your stop loss

When trading long using Gann Swing Theory, your initial

stop loss is set $0.01 below the previous swing low or

when price retraces to break through 50% of the

preceding swing range as shown in Figure 3. During the

trade your stop loss is continually moved up to act as a

trailing stop loss until you exit the trade.

Figure 3: Trailing Stop




The exit

Figure 4 shows that upon entering the trade in

Bluescope Steel (BSL) the initial stop loss is set $0.01

below the prior swing low (point 1) or 50% of the

previous swing range (point 2). Once again we trail the

stop loss up, which in this example is $0.01 below each

successive swing low (points 3, 4 and 5) until we exit the

trade, once price trades below point 5. As an alternative

stop loss method, we could have used 50% of the

previous swing range, which in this example would have

kept us in the trade for the same period although our

exit would have been triggered at a higher price.

Figure 4: Bluescope Steel – Exit

Entering a short trade

Once direction is confirmed on a weekly Swing chart by

the presence of lower swing highs and lower swing lows

you would sell (trade short) using a Swing chart when

price falls $0.01 below the previous swing low after

confirming a lower swing high, as shown in figure 5.

Figure 5: Short Trade Example

In the example in figure 5 the stock

confirmed a lower swing high at

$1.20, then fell away to break below

the previous swing low of $1.05.

When this occurred you could have

entered into a short position at

$1.04.

Figure 6 is another weekly swing

chart of Sonic Healthcare that shows

where to enter a short trade based

on Gann Swing Theory. After

confirming a swing high at point 1,

SHL moved down strongly to confirm

a lower swing low at point 2. SHL

then rose to confirm a lower swing

high at point 3 before turning to

trade down to move below point 2,

triggering an entry.




Figure 6: Weekly swing chart Sonic Healthcare – Entry

Managing a short CFD trade and setting your stop loss:

On entering a short trade, your initial stop loss is set at

either 50% of the previous swing range or $0.01 above

the previous swing high as shown in Figure 7.

Figure 7: Trailing Stop to Exit

As the trade unfolds, the stop loss is continually lowered

to act as a trailing stop until you exit

the trade.

Figure 8 below shows that upon

entering a trade on Telstra (TLS) the

initial stop loss is set $0.01 above the

prior swing high (point 1) or 50% of the

previous swing range (point 2). Once

again, trail the stop loss down. In this

example $0.01 below each successive

swing low (points 3, 4 and 5) until the

trade is exited once price moves above

the swing high at point 5. As an

alternative stop loss method, we could

have used 50% of the previous swing

range, which in this example would

have seen us exit the trade prior to the

swing high at point 4.

Remember that the shorter term trend will always

conform to the longer term trend. Therefore when

trading over the short term using swing theory, you

need to ensure both the daily and weekly charts are

pointing in the direction of the trade you are taking. It is

also strongly recommended that the monthly chart is

pointing in the direction of the trade, so that you know

the longer term momentum is with the trend.

Figure 8: Weekly swing chart Telstra – Stop Loss








Adhering to these rules may be hard when a stock

moves in the direction you want and the swing chart

keeps you out of the trade for a time, resulting in your

entering at a higher price. While at times this may

happen, you need to stick to these rules rigidly, as they

will greatly reduce the risk you take when trading. They

will also save you from entering losing trades.

About Dale Gilham

Dale Gillham, founder and chief analyst of Wealth Within

successfully trades $10’s of millions on behalf of clients using

his proven and audited investment strategy. His company also

specialises in delivering Australia’s first and only nationally

accredited Diploma and Advanced Diploma of Share Trading

and Investment as well as the accredited Course in Contracts

for Difference. For information about Wealth Within visit

www.wealthwithin.com.au

http://www.wealthwithin.com.au/

http://market-analyst.com/gann-analyst-edition.html

The Educated Analyst | 20 Lessons in Geometry MAY/JUNE 2010

Given the overall hectic and volatile trading in markets,

it has never been more important to incorporate

geometry in your analysis. My conclusions are drawn

from 47 years as a professional Technical Analyst.

During that time, I have participated in three major stock

market crashes and you never stop learning. I now spend

my days and (some nights) happily watching the markets

on MARKET ANALYST 6 – much more interesting than

any TV.

The secret in successful trading and investing is to have a

trading plan as well as a good piece of software, and in

my opinion to keep some hand drawn charts especially

for the big picture – they really give you perspective.

The “Global Financial Crisis” presented some

extraordinary opportunities for traders and investors

who went short after the 2007 high and then closed out

into the panic lows in March 2009. A stop and reverse

situation which has paid off handsomely given the

current uptrend.

Market participants are continually confronted with

predictions using Gann, Fibonacci and other

methodology and a plethora of technical indicators to

help you safely navigate the trend which remains your

friend (until it is about to end). This is where the real

technical skills come in to pinpoint the reversal when it

comes and not to find yourself on the wrong side of the

boat.

The right side of the chart is the most important and

difficult one. I am a firm believer that price is your best

indicator, with other tools serving as backup.

In this article I am showing you the charts and indicators

that will continue to serve you well, and where you can

build a good trading plan around them.

(1) No. 1 chart would be a half hourly chart on the ASX

200 Index (or any other market you trade). I find half

hourly good for our local market, but hourly charts are

used by Michael S. Jenkins and Robert Prechter Jr. who

claims he does his best wave counts from this type of

chart which must be done by hand and not computer.

Market Analyst 6 tic data makes this an easy task.

Lessons in Geometry

With Dawn Bolton-Smith

ASX 200 Half Hourly


(2) Point and figure charts are not widely used by

traders and while some software programmes have

them, they are not as efficient as the ones you would

draw yourself. Market Analyst 6 tic data allows you to

draw really accurate charts. It is always exciting for the

first 40 minutes or so on APCSpot to maintain a P&F

chart likewise the final 30 minutes trading.

(3) The best back up system in my view is DIRECTIONAL

MOVEMENT devised by J. Welles Wilder Jr. I had the

privilege to learn it at a Seminar at the Sydney Opera

House in 1980. A point of interest is that the early

computer systems were devised as a result of the 1970’s

commodity boom. I put it on every chart – line – bar or

candlestick I choose to analyse. If you understand the

principles of DM and abide by its simple rules, you will

never be wiped out in a market. The best example for

me at the time of the 1987 top was that prior to the

crash there were three weeks warning to get out of long

positions, and it totally convinced me of its true value

especially in the big picture. For traders it works well

even on one minute time frames. For the purpose of

this article, I have reproduced the hand drawn half

hourly chart back to the 11/1/2010 top and a daily chart

on the ASX 200 Index showing DM.

(4) A group of harmonic moving averages (5/15/30)

period which I learnt from the late Phyllis Kahn at a Gann

Seminar in San Francisco in 1985. The first task was to

draw up a Gann square plastic overlay which serves to

illustrate the geometry in the markets and I use this

extensively in my analysis. I do not use Elliott Waves –

best left to others. The harmonic moving averages

provide other useful information – i.e. “clustering” when

they all come together there is usually a big momentum

move. They need to be in their natural progression – for

an upmarket the price on top of 5, then 15 and 30. The

converse applies to a

down market. The

simple reason why

these work is the

accumulation (or

distribution) periods

getting ready for the

next trending move.

After a long move up

(or down), there is

an “even stacking”

signal i.e. the

distance between

the averages is

approximately the same. It is a warning that a

correction is imminent and that you should watch for a

reversal signal bar. The market can continue to advance

after the “es” but the implications are for a move back

to the 30 period m/a. In strong trends, the 15MA

provides support.

As a point of interest, the uptrend which commenced at

the March 2009 lows, these averages have taken the

shape of Dr. Dologa’s famous pitchforks. You will be

amazed at this phenomenon.

A combination of these technical tools has provided the

signals for successfully trading the trend since the

January 2010 top. Space precludes a bigger time frame

but in essence the principles are the same, allowing you

to trade the volatility. Sudden reversals should not take

you by surprise if you do a thorough piece of analysis

before you jump into a trade. Money management is

another extremely important part of your trading plan

and you have a head start with Market Analyst 6

software.

ASX 200 INDEX – 2 pt. Point and Figure


There are many other fine indicators to use for

monitoring trends. Mathew Verdow is to be

congratulated for his continuing research and

application of new developments in Market Analyst 6

which will take you into the 21st century. Market Analyst

also have an excellent support team.

There are many roads to Rome and there are excellent

textbooks you should have on your bookshelf to read

and study. For traders, Dr Mircea Dologa has written

three textbooks on INTEGRATED PITCHFORK ANALYSIS

for beginners , intermediate and advanced which cover

just about every conceivable technical trading system. It

is an amazing piece of work which took over three years.

If you could only have one textbook this would be it!

One of the true advantages of the Point and Figure

method are the clear entry and exit signals. There is no

need to judge whether it is the right time to enter the

market or not.

Likewise the investor or trader will always know the

exact time to exit the market with profits. The method

is very suitable for identifying support and resistance

levels – one of the keys to successful investing and

trading. Equipped with the power of the Point and

Figure method, the investor or trader has a clear picture

of the forces of supply and demand. These are the

forces that determine price movements. With this

information the investor or trader can correctly

anticipate stock price movements and be positioned

correctly for great gains! The Point and Figure method is

so simple to put into practice that there is no question

why it has stood the test of time, and why it has been

proven profitable again and again for over a century.

The law of supply and demand is a universal law, and it

will never change. When demand overcomes supply,

the prices will rise. When supply overcomes demand,

the prices will fall. Learn how to identify the forces of

supply and demand using Point and Figure method and

you will hold the key to consistent stock market profits.

More proof – in an article in the 2010 IFTA JOURNAL, by

Professor Hank Pruden, an authority on P&F. The

Wyckoff Method passed a real time test. A chart on

DOW JONES – 100 Point box from April 2002 to

September 2003 gave an upside target of 14,400 and

that is precisely where it went in mid 2007. The edition

of the Journal is well worth reading. The chart speaks

for itself.

ASX 200 Half Hourly Chart is a very special chart and

serves to well illustrate the trading from 11/1/10 top.

The full measurement on 1 mm graph paper = 82 cm on

the horizontal axis and 27 cm on vertical. It had to

undergo a series of reductions to get it to A4 size

suitable for this Newsletter. Some of the really neat

pivot points in intra-day trading are so precise to the 1

mm. I have drawn in most of the significant trendlines

and angles which go to make up this amazing and

informative chart, but have tried not to make it too

busy. Every line is important and especially the 45

degree support and resistance lines – the 45 uptrend

from 26/2 one such trend up to 10/3 high which then

ushered in a 4 day correction. It then took off again

making a higher high on 24/3 – a short 2 day dip to 26/3

low before continuing the uptrends of 3-4 day durations

making higher highs and higher lows consistent with a

strong uptrend.

The “clustering” of the m/as and “even stacking” and

crossover of Directional Movement from short to long

markets have been labeled. The low after 8/2 “es”

supported a rally to 23/2 and then a correction to 26/2

thus establishing support line (A) travelling at a rate of

22 ½ % (1/2 of 45). I drew in a parallel trend line with the

market running up to 10/3 high. The 45 degree angles

significant in the short term corrections. Currently close

(9/4) to the magic “5000” level in the ball park for the

coming week.

Given some important cycle dates in S&P & Dow it is not

a market to turn your back on. The night traders have

enjoyed a bonanza – managing to capture the Wall

Street overnight impulse moves. Attention to detail will

give your trading the edge! The 30 period moving


Experimenting with a compass allows you to make counts and arcs for target areas.

A section of this chart from 22/3 until 6/4 is a good example of using this methodology in conjunction with the half

hourly. It too presents good support and resistance levels.

Worth noting is the base ¼-6/4 which supported the move up to current levels, also the uptrendline from 16/3 in

close proximity of the case area. This P&F makes trendlines not evident on other chart styles as well as identifying

the key S&R levels. Both charts provide excellent signals for the alert trader – well worth the effort with hand

charting. The impulse moves mostly generated by Wall Street.


DOW JONES – Point &Figure 100 Point Box size

average appears on the chart as dots. What is interesting is that the current price is closing to the rising 15 m/a.

ASX 200 index - Candlestick (Daily)


A good historical chart from 2002 to 2003 which

supported the bull market into 2007.

ASX 200 INDEX – 1 day Candlestick Chart – Market

Analyst 6.

This chart shows the 8 period Directional Movement

from the end of the “Santa Clause” rally and the 11/1/10

top. I normally use 11 period but the 8 can be good in

fast markets.

Also on this chart is a 3 period moving average which

combines with 5 period for good exit and entries. The

8/33 Stochastic also provides good signals.

About the Author

Dawn Bolton-Smith is the matriarch of technical analysis in

Australia, with a career spanning 43 years. A female pioneer of

trading in Australia, Dawn successfully predicted the 1974

share crash and called the bottom of the market to within four

points.

The Educated Analyst | 25 DIVERGENCE – A powerful tool for Traders MAY /JUNE 2010

his article attempts to describe and clarify how to

recognize and use both Bullish Divergence and

Bearish Divergence. It is aimed at people who are

new to technical analysis and those who wish to re-visit

some basics. It includes some useful tips for people

wishing to trade … rather than just analyze.

Divergence is a by-product of the use of price charts and

indicator(s). It is not always present to herald a change

of trend … but when it does appear it is well worth

heeding the early warning of possible price reversal.

There appears to be a hierarchy of usefulness of

indicators regarding divergence. Some are extremely

powerful while others rarely (if ever) provide this added

benefit.

What is Divergence?

Divergence is the word used to describe the condition

where the price and an indicator give opposite views. It

is when the interpretation of price action suggests

continuation of the

current direction at

the same time as the

interpretation of an

indicator [or other

confirmation tool]

suggests a reversal.

When divergence is

identified, it is the

indicator that assumes

“naming rights”.

Consequently, if the

price suggests a

continued upward

movement and the

indicator suggests downward movement, the bearish

(i.e. downward) nature of the indicator takes control –

hence Bearish Divergence. Alternatively, if the price

action suggests continuation of a downward movement

and the indicator suggests upward (i.e. bullish)

movement, this is a case of Bullish Divergence.

The convention for determining bearish divergence is to

look at the peaks of both price and indicator. If the price

peaks are getting higher and the indicator peaks are

getting lower (bearish) then you have bearish

divergence.

For bullish divergence it is a little different. Here it is the

troughs of both price and indicator that are important.

When the price troughs are getting lower and the

indicator troughs are getting higher (bullish), the price

action and the indicator are displaying bullish

divergence.

Although it is seldom (if ever) mentioned in the text

books and / or reputable published articles, accurate

record keeping and communication of findings should

nominate the indicator displaying divergence with price.

For example “bullish divergence is being shown between

XYZ and the slow stochastic indicator”.

Bullish Divergence

[Fig.1: Weekly chart of the BHP Billiton (BHP) showing

Bullish Divergence with the 20 period Commodity

Channel Index.]

Figure 1 shows BHP on a weekly price chart from April

2008 to November 2008. From its highest point in May

DIVERGENCE

A powerful tool for traders

With Robert Lenox

With Robert Lennox




2008 to its lowest point in November 2008, BHP lost 60%

of its value in 27 weeks. This was a fairly significant drop.

Points A and B (Fig.1) indicate price troughs on BHP.

Below the bar chart of price action is a chart of the 20

period Commodity Channel Index (CCI). It shows troughs

in the indicator values at points C and D. A and B on the

price chart correspond to C and D respectively on the

indicator chart.

This is an example of bullish divergence.

One interpretation of this divergence phenomenon is

that the mathematics of the indicator suggests that the

downward thrust of the price action may be

unsustainable. This was in fact the first significant

technical sign that the decline in BHP price action may

have bottomed.

TRADERS BEWARE !

Although bullish divergence can be a very powerful

signal that the downward move may be losing strength,

it has proved to be unsatisfactory as the primary signal

to enter a trade. It is not uncommon to find a three-

touch divergence.

Bullish divergence has, however, shown itself to be a

very effective signal to close out short trades.

Bearish Divergence

[Fig.2: Weekly chart of the BHP Billiton (BHP) showing

Bearish Divergence with the 20 period Commodity

Channel Index.]

The price action illustrated in figure 2 shows BHP rising

in price from $23.90 in January 2007 to $47.70 in

October 2007. That is a 98.58% rise in 40 weeks. This is

quite a significant rise … especially for a blue chip stock.

As shown (Fig.2) there were significant price peaks at

points E and F on the price chart.

Points G and H are corresponding peaks in indicator (CCI)

values.

Whereas the line joining E and F is rising, the line joining

G and H is falling.

This is bearish divergence and the mathematics suggests

that the upward movement cannot be sustained. This

particular instance of bearish divergence was at the

beginning of a 35% drop in BHP share price.

ATTENTION TRADERS AND INVESTORS

The presence of bearish divergence may be a signal to

pay particular attention to stop management procedures

and / or a call to commence hedging strategies to

protect built-up profits. Bearish divergence is not

necessarily a signal to short the market.

Indicators Displaying Worthwhile Divergences

In Animal Farm, George

Orwell introduced the

concept that “all animals

are equal, but some are

more equal than

others.” This may also

be applied to indicators

showing divergence.

Nearly all indicators may

display divergence at

some time … but there

are some that show it

more consistently and

with greater degrees of

accuracy and usability.




While there are no formal statistics to back this up,

anecdotal evidence and practice suggest that the

following four indicators have proved to be valuable in

their handling of divergence studies. They are, in order

of accuracy, consistency and usability:

1. Commodity Channel Index (CCI) 2. Slow Stochastic Indicator 3. Relative Strength Index 4. Moving Average Oscillator

The first two appear to get their strength from the fact

that they include high, low and close prices in their

calculation. The second two are close-only calculations.

Note also that the moving average oscillator is the same

as an MACD-Crossover with the trigger set at “1”.

For people starting out on the road to divergence

studies, these four may provide a good beginning.

Time Frames for Divergence Studies

Divergence studies and signals are completely

independent of time frames in use. That is, they operate

and display effectively on monthly, weekly, daily or

intraday charts.

Develop the skill of identifying divergences on one time

frame and then apply it across the full range of chart

time frames.

Trading Implications

Bullish and bearish divergences can provide an early

warning of a significant change in trend. This is an

important consideration for traders in terms of trade

entries and trade exits. Before using this (or any other)

tool in the live trading environment, it is essential that

traders develop and test their proposed strategy and

apply strict risk management and money management

rules to all trades.

The real value for profitable traders is the price action.

The indicator (including divergence studies) may provide

early warning so that better and more profitable trade

exits might be made.

Summary and Conclusion

Bearish divergence is taken from the peaks.

Bullish divergence is taken from the troughs.

Divergences may provide early warning of trend change.

Divergences are not always present … but pay attention when they are there.

Remember to test divergence trading strategies before going live with them.

About Robert Lennox

Robert Lennox is an active trader of Shares, Futures & CFD's

and has been trading since the early 1990's. With a

background in education, Robert began teaching the skills he

developed to successfully trade in the mid 1990's, and has

worked with 5 education companies in this time.

Currently, Robert's main focus is his trading, however he also

works with two education companies as a guest speaker.

The Educated Analyst | 28 Trading with the Single In/Scale Out Method MAY /JUNE 2010

In the March/April edition of Educated Analyst, we

considered the benefits of trading multiple contracts

with an approach that I refer to as the Single In/Scale

Out method. If you didn’t have a chance to read that

article, please do so as this article will pick up where we

left off. Before we discuss the mechanics of how to

liquidate the last contract of the Single In/Scale Out

method, we will first discuss the use of the 3 Bar trailing

stop.

The 3 bar trailing stop is a useful mechanical device to

liquidate an open position in an orderly and disciplined

manner. To calculate a 3 bar trailing stop, look at the last

three complete bars displayed on the chart. Complete

bars are ones that are static or are not still in the process

of being painted on a chart. If your position is long, you

will be looking for the lowest low of the last three

complete bars. If you are short, you will be looking at the

highest high of the last three complete bars. It is just

beyond this high or low that you will place your stop.

Typically, we will put a stop one tick beyond this high or

low bar. The only caveat to the above

rules is that you cannot include inside

bars in your calculation of the

previous 3 complete bars. An inside

bar is a bar where the range from the

high to the low is within the range of

the bar that is immediately preceding

it. Remember it can only be an inside

bar in relation to the bar immediately

to it’s left, not in relation to the bar

two bars ago or three bars ago. Also a

reminder for candlestick traders; we

do not care about the opening and

closing prices with this trailing stop, it

only considers the extreme highs and

lows. An example of an inside bar can

be seen here in Figure 1; Notice that

the range of the bar that is marked as

an inside bar is inside of the range of

the bar that is labelled as bar 2?

In Figure 1 we are going to calculate a 3 bar trailing stop

on a short trade. Working from right to left we are going

to count back 3 bars and label them on the chart. The

first bar on the right we will label as bar number 1 as this

is the last complete bar on the chart. The chart is daily

and regardless of whether a new bar starts to paint on

the chart, we will not use any of that new information in

the calculation of our stops. Notice that bar number 1 is

not an inside bar, so we will label this bar as the first bar

of three. Working from right to left, notice that the bar

immediately to the left of bar number 1 is an inside bar

so we will not include that bar in the 3 bar count.

Working again from right to the left, we see that the

next bar is not an inside bar so we will label that one as

bar number 2. Proceeding to the next bar to the left of

bar number 2, we find a bar that is not inside the range

of the bar beside it, so we can count that bar as bar

number 3.

Figure 1 3 Bar Trailing Stop with Inside Bar

Trading with the

Single In/Scale Out Method Part 2

With Ross Beck


Part 2



As mentioned, we are short in this silver trade so we

now need to find the highest of the three bars that we

have labelled. As you can see, bar number 3 is the

highest high of the three bars in question, so this will be

the place to put a stop. The assumption is that the

downtrend would be over if the market takes out the

high of bar number 3.

One piece of advice… don’t put your

stop exactly one tick beyond the

range of the bar if the number ends

with a 5 or a 0. Put it just beyond the

range of the 3 bar high or low, and

pick unusual numbers that people

don’t typically use such as 67 or 74 or

38. This reminds me of bidding on

Ebay. If you’ve ever bid on something

at Ebay, have you ever lost to

someone that outbid you by 1 cent?

This happens when we put in a

maximum bid on an item with a

number such as $20.00. The

experience “Ebayer” knows that

some inexperienced bidders will bid

at $20.00, so he puts in a maximum

bid for $20.01 and wins by a penny.

This also happens with trading. So in

view of the foregoing, if you were long and thinking of

putting a sell stop in at $20.00, change it to $19.86 or

$19.93 or some other random number to avoid getting

stopped out unnecessarily.

Going forward, as new bars continue to be added to the

right side of the chart, there will be a need to recalculate

our 3 bar trailing stop to determine if the stop is still on

the highest high of the previous three bars. Eventually,

the market will exceed the highest high of the previous

three bars and you will be stopped out. The result of the

trailing stop that we initiated in the trade above can be

seen in the chart below in Figure 2. I left the 1, 2, 3 labels

on the screen so that you can see where we put the

trade on. The crooked line displayed above the highs is

an automatic X bar trailing stop available as part of the

Beck Tool Group add on module available through

Market Analyst. In this example you would have been

stopped out based on the high of June 26, 2009.

Figure 2 3 Bar Trailing Stop Indicator

To manage the last position of our Single In/Scale Out

Method, we will use a three bar trailing stop but we are

going to use it on the next larger time frame. Our initial

trade set up was on the daily chart, so now we are

switching gears to the weekly AUD/USD chart. As you

can see below in figure 3, the Gartley Pattern is still

visible and I have included the profit targets and stop

levels for our single in/scale out strategy.




Figure 3 Changing from Daily to Weekly

As noted on the chart above in figure

3, if we use a three bar trailing stop,

we have to look back at the last three

complete weekly bars on the chart to

determine where our stop should be

located. The lowest low of the

previous 3 weekly bars is the low of

bar number three at .6853. Notice that

this low is below our entry price of

.6910. With that being the case, we

will not employ the three bar trailing

stop on our weekly chart until it

exceeds our entry point at .6910. In

other words, until the three bar stop is

above our entry point, we won't use it.

The idea is that we don't want to lose

any money on the remaining contract;

so that means that the three bar

trailing stop will only kick in when it is above our entry

point. The chart below, figure 4,

shows us when the three bar trailing

stop begins to take effect.

In figure 4 we can see that the three

bar trailing stop on bar number 3 is

now above the entry price of .6910.

Now the 3 bar trailing stop kicks in

on the weekly chart, and we have

our "lottery ticket." The result is on

the next page in figure 5.

The line shown under the bars in

figure 5 is an automatic 3 bar

trailing stop available in Market

Analyst. The 3 bar trailing stop on

the weekly AUD/USD would have

kept us in the trade for over three

months until we took off our last

position at .7680.

Figure 4 3 Bar Trailing Stop Above Entry Price






To review these two articles on the Single In/Scale Out

strategy, we had an initial risk of 450 points. Hitting the

first target paid us 75 points and reduced our risk to 75

points or 83%. The second target paid us 150 points and

our stop was move to entry, thus theoretically

eliminating the chance that our profit would turn into a

loss. The last position or "lottery ticket" was liquidated

for a 770 point profit. The single in/scale out strategy

works well in all markets and all time frames. Regardless

of what trading system you like to use, do yourself a

favor and start using the single in/scale out money

management strategy with your existing trade setups;

you will be glad you did!

Figure 5 In Scale Out Strategy

About Ross Beck

Ross Beck, FCSI is VP of Business Development for Market

Analyst International and author of the forthcoming book

published by Wiley Trading entitled, “The Gartley Trading

Method.” For more information, go to gartleytrader.com.



http://gartleytrader.com

The Educated Analyst |32 Looking back with W.D Gann MAY /JUN 2010

In his Stock Market Course, Gann had a section called the ‘Dow Jones Resistance Levels’ where he particularly focused

on the Sharp V bottom of Aug 8 1896 low 42 up until the Final top of Sept 3 1929.

1896-1929 = 33years

The exact distance between the dates was 33.07 years, 396.81 months, 1725 weeks and 12078 days.

Below is a chart cast for the 8th August 1896

Look within the circle and you’ll see lots of

squares and oppositions between planets

forming a Fixed Square/cross.

This is a square within a circle - one of the

shapes in Gann’s Emblem. When planets form

such alignments, the energy is very difficult.

Especially the fixed quality which adds more

constriction to the natural flow of energy. The

four fixed signs are Taurus, Leo, Scorpio and

Aquarius. As a midday chart, you can see the

dominance of Fixed in the grid below. Fire is

also the dominant element which brings in the

theme of heat and destruction.

LOOKING BACK WITH W.D GANN LONG TERM CYCLES With Olga Morales

‘The culmination of the Bull market in September 1929 was really the result of a long term business cycle which began in August

1896 and continued for 33 years, with each campaign in the market making higher prices, which showed that the long term trend

was up.’ - W.D. Gann, the New York Trend Detector


In comparison, the planetary energy leading into

the high in 1929, there were more sextiles and

trines with an overall balance in terms of

qualities and elements. These simple techniques

are often overlooked in chart analysis, however

can help determine the energy level of the day.

They are called chart signature patterns.

Jupiter is sextile Uranus.

Gann then mentions the End of the Great Bear Market.

Final Low July 8 1932 at 40.5

1896-1932 = 36 years

1932 takes us to The Tunnel Thru the Air

specifically from page 300.

Edna says, “Mr Gordon, do you know that the

market is following the forecast you mapped out

in 1927?”....Edna asked if he thought there was

any hope of the terrible war ending soon. “No,”

he replied, “it will get worse in 1931 when many

other nations will join against us. The end will not

come until the Summer or Fall of 1932.”

What is fascinating about this low was that it was

one day before the exact trine of Jupiter and

Uranus; the day the upward trend began both in

fire signs.

3rd

September 1929


Looking forward now, some 55 years to the

day of the low after the 1987 crash, what can

we see that is similar to the 1932 low?

Jupiter is once again Trine Uranus and this time

also to Saturn. Again we have the exact same

degree of a fire sign.

23 degrees of the Fire sign is a very sensitive

degree in these charts.

At the High in 1929, Saturn was 23 Sagittarius,

then at the low transiting Jupiter at 23 Leo

Trine transiting Uranus at 23 Aries, formed a

grand Trine with the natal Saturn in 1929.

In 1987, we find these three planets again at

these sensitive degrees in a FIRE sign.

Below are the 4 charts overlapped in a quad-wheel, I know it can look a little confusing at first, however just observe the

Grand Trine (green triangle) and the planets at 23-24 degrees in the Fire signs of Aries, Leo and Sagittarius at the three

points.


I will finish this article with a quote from Luther Jensen.

pg 36 Astro-Cycles and Speculative Markets.

“Since 1896 Uranus and Jupiter have been in a favourable aspect 28 times. In every case these aspects coincided with

gains in business activity. The July 8th depression low coincided with the exact trine of these two planets on the 9th July

1932- the day the upward thrust began. A synthesis of the relationship by aspect and sign position of Jupiter, Saturn and

Uranus, plus the sunspot cycle is the frame work upon which to project the primary trends of business and the

markets.”

About the Author

Olga Morales is a professional astrologer and Gann trader. Olga has developed an independent online study course specifically

designed to teach basic to more advanced astrological techniques. The courses follow an easy step-by-step format with audio/visual

tutorials produced on DVD.

For more information visit www.astrologyforganntraders.com.au

http://www.astrologyforganntraders.com.au/

http://market-analyst.com/astronomical-edition.html

Documents

RETURN OF THE BEAR?