What an exciting Gann Jump Start we have had in Sydney this week! The seasonal date fell during workshop so we were watching for a turn on the market and the market duly delivered. On Thursday morning we woke to find the Dow Jones had fallen 400-points and the SP500 had dropped more than 3.5%. Interestingly, some of the potential setups we were watching were short trades on the banks. Many of the banks went ex-dividend this week and we were able to watch the effect of this ‘live’.
We were quite interested in a short setup on ANZ Bank but the US market drop combined with the dividend meant ANZ was going to open around the 50% level of the trade. The only way we could possibly enter was with a Short the Openers Rule but after watching the open live in class we decided to let this one go. The actual open was closer to 75% of the trade so unless this was part of a much bigger move, the gap had eaten into too much of the potential profits.
Chart 1: ANZ Bank Daily Bar Chart
click chart to enlarge
The Commonwealth Bank also had a short setup but it didn’t gap down quite so far because it wasn’t going ex-dividend, though it was still around 40%. The end of day bar shown in Chart 2 doesn’t look like a Short the Openers was possible but in fact the market spent most of the day below the open and shot up in the post-lunch session.
Chart 2: Commonwealth Bank Daily Bar Chart
click chart to enlarge
Entering using Short the Openers (an advanced entry strategy from the Number One Trading Plan) tests the trading psychology of novice and experienced trader alike. It is easy to panic at the sight of a gap in the direction of the trade, either jumping in when we should let a trade go or letting slide an opportunity to join a bigger move.
If Short the Openers entries are not part of your regular trading, or if you still lack confidence in this strategy, there are a few steps you can follow. Try watching a stock (or even the SPI200) for the first half-hour of the market each day for a week or two. You can do this using your broker’s trading platform. Note where the market opens in relation to the overnight moves, then every few minutes note the volume in relation to the average daily volume and the direction in relation to the open price. When you come to using this technique to enter a trade, you will be more comfortable with the process of watching the market open and be less likely to panic.
If you want to utilise this entry method, add it to your written Trading Plan. In the Smarter Starter Pack, David Bowden tells us to have a written trading plan and to add various techniques to it as you conquer them. A written plan outlining when to use and how to manage Short the Openers will help to keep you calm when market volatility might otherwise lead to panic.
It’s the Journey