An email I received recently from a Platinum student brought on a sense of déjà vu. The student’s description of his trading journey so far - including the frustrations and the successes – closely resembled my own. We both realised that once we had learned all the Platinum material for analysis, forecasting, picking turning points and using advanced entries and exits, we returned to the basic premise of trading with the trend to build up our trading accounts. The key difference was that post-Platinum we were able to combine experience with extended knowledge to select better trades.
The goal of every trader should be to find a strongly trending market and trade a big percentage of it. David Bowden said he aimed to take 50% of every big move he traded.
As forecasters, we like to get in on a turn as early as possible but when a market is trending there is usually plenty of opportunity to take continual trades. Take a look at Apple or Nike over the past year – taking 1 day, 2 day and weekly ABCs has proved to be quite profitable.
In recent articles I have discussed several setups I have been watching for continual trends to emerge. One of these was CAT on the NYSE, mentioned in a recent Platinum article. One thing I have been watching for is an overbalance of time as well as price. Chart 1 illustrates the areas I have been comparing for the overbalance.
Chart 1: Caterpillar Daily Bar Chart with Overbalance of Price and Time
click chart to enlarge
The daily and weekly swing charts are now showing a down trend. CAT has overbalanced the November and December fall in both time and price and the 2 day ABC short, which acted as the First Lower Swing Top trade reached just past 100%. A rally could be expected now but keep an eye on this stock, as the double top setup might just provide some more short trades.
Another setup I am stalking for a big move is Wells Fargo, as discussed in previous Trading Tutors articles. This is showing a triple top but the swing charts are still showing an up-trend. A potential first lower swing top is showing (at the time of writing) and if this setup plays out, we could expect an extended move and plenty of opportunity to trade with the trend.
Chart 2: Wells Fargo Daily Bar Chart with Potential Third Leg Down
click chart to enlarge
If we are to see a third leg of similar range and duration to the previous two (as shown in Chart 2), then there will be plenty of potentially profitable Smarter Starter Pack and Number One Trading Plan trades to take. Whether you have been trading for some time or are just starting out, you are never so good that you don’t need to sometimes get back to the basics.
It’s The Journey