A key part of any trading plan is looking for set ups and if you are finding that part of your trading analysis boring, then so be it. To quote one of my fellow instructors: “I want a long, boring and profitable trading career, not a short and exciting one!”

Personally, I look for double tops on a 50% level and one set up I am stalking at the moment is on the Commonwealth Bank (CBA:ASX).

Chart 1 illustrates a price cluster formed by 25% of the all-time-low to all-time-high range, 62.5% of the 2007-10 range and twice the 2009 low.

Chart 1: CBA Daily Bar Chart with Price Cluster

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While looking at more recent ranges, I stumbled upon a 2-day swing top sitting under 50% of the range from the February high to the August low, as displayed in Chart 2. If the market were to move up for a few more days, this might create a double top on the 2-day swing chart under 50%, with potentially equal timeframes in each leg.

Chart 2: CBA with Ranges Card and Swing Overlay

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Now let’s consider a timeframe that we have frequently seen repeated on CBA. Chart 3 shows how the 148-day timeframe (and percentages of it) has predicted previous turns. Projecting this forward gives us a date to watch in late September. This date coincides with the seasonal date, providing an even stronger reason to watch for a turn. If we were to see the double top setup, then perhaps it would run down into this date.

Chart 3: CBA with 148-day Timeframe

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click to enlarge

So, if this setup forms, how could we trade it? (I have given a hint by using the 2-day swing overlay.) We could possibly use a 2-day ABC short entry and use the milestones to set our stops. But if there was a big reversal day on the price we are watching, we might not be able to enter within limits after 1-day down. This is a salient case in point as to why we should have a range of trade entry options in our toolbox.

Section 9 of the Number One Trading Plan includes the Openers or Closers rules, which significantly enhances our trading by offering more entry opportunities. To use these you need to be able to watch the market open and close so you can place your order ‘at market’.

Once in the trade we also need to consider trade management, including profit targets. I would be looking for price clusters with the 100%, 150% and 200% price levels to decide my placement of stops.

By the time this article goes to print you will probably know if this setup eventuated. Alternatively, we might see the market stay above the original price cluster of $48 and the breaks below will turn out to be false breaks. Whether this set up forms or not, you never make a loss by stalking the market and looking for opportunities.

With the CBA, we now have some prices and timeframes to watch and a couple of ideas as to how we might trade it. All we need now is the setup.

It’s the Journey

Lauren Jones