Welcome all Safety in the Market students to this month’s dedicated newsletter.
In this issue I would like to share some insights on the power of focus in the financial markets.
In my very early days as a Safety in the Market student, both Aaron Lynch and Noel Campbell told me I should choose one market in which to specialise. In hindsight, that was one of the best pieces of advice I received in trading (along with “Never trade without a stop-loss!”)
At the time I had two main hurdles to overcome. First, I had no idea which market I should follow. Second, I didn’t believe that I could pull a market apart like David Bowden had done.
Eventually, I bit the bullet and chose a market. For around a month, I followed Lumber Futures (LB-Spotv). I began a hand chart and followed the swing charts every day. For the next month I applied every technique from my Safety in the Market courses, from Resistance Cards to Gann Angles to Master Time Cycles.
I found that the Lumber market followed Gann’s techniques extremely well. The problem came when I took my first trade and realised there was very little volume traded each day, as illustrated in Chart 1 below:
click chart to enlarge
When I was following this market in 2006, Lumber was only trading about 800 contracts per day. By comparison, Crude Oil futures were averaging 150,000 contracts per day. There just wasn’t enough volume to trade Lumber futures with confidence and the wide spreads and long periods without trading during the day made it very hard to get into, or out of, a contract.
I realised that my days in the Lumber market were numbered and decided to choose another market. Because of my experience with the Lumber market and its lack of volume, I wanted to trade a market with a lot of volume and this led me to Foreign Exchange.
During my first Gann Mastery seminar as a student in May, 2006, I decided to follow the US Dollar/Japanese Yen currency pair (FXUSJY in ProfitSource) after seeing how well the Permanent Square worked on this market.
I later found out that the day I decided to follow the US Dollar/Yen (May 16) was in fact the anniversary of the birth of the Yen Futures Contract.
For the next 12 months I focused solely on the US Dollar/Yen market. I kept a hand chart, checked the prices every day and applied every technique I knew to this market. I discovered things about this market that I had never seen before and had never heard anyone else discuss.
I became intimate with the Yen’s pattern, how it works and how it unfolds during a move.
This is the power of focus. There is so much going on in a single market at that unless you focus on just that one market, you will miss 95% of what it is trying to tell you.
Once you have spent some time getting to know a market and you are in harmony with it, you can then consider adding a second or third market, or as many as you believe you can handle.
I cannot recommend this exercise highly enough – it is a MUST for any serious Gann trader. I would suggest picking a market you would like to trade and studying it for at least a month. Even if you later decide you don’t want to trade this market - like my experience with Lumber futures - you will still learn and grow as a trader. I learnt a lot from studying the Lumber market and this helped me to analyse the US Dollar/Yen market.
Chart 2 below reflects the day I began following the US Dollar/Yen and where I began my hand chart:
click chart to enlarge
I went back to the January 17, 2005 low to begin my hand chart so that I could study history and understand where the market was heading. I had been trading the US Dollar/Yen for more than a year before I called my first major top.
I recommend students choose a market, commit to it for a month and then apply every lesson in the course manuals to that market alone. If you have the Number One Trading Plan, apply Price Forecasting. If you have attended a Gann Jump Start, apply Time Trend Analysis and Angles. If you have completed the Ultimate Gann Course, apply Squares, etc.
While these steps are crucial for anyone who wants to specialise in a market, they will also increase your comprehension of Gann techniques by analysing how they have worked in the past.
A great example of a trade that is worth pulling apart is the September, 1992 crash on the British Pound (BP-SpotV in ProfitSource), as shown in Chart 3 below:
click chart to enlarge
George Soros made more than a billion dollars in one day on this move and etched his name into the history books. If you think a billion dollars is a lot of money today, imagine how much it was in 1992!
I encourage all students to apply their Gann knowledge to this market, whether they are Smarter Starter Pack students following swing charts or Platinum traders using Angles and Squares.
The Soros trade gave me confidence in a major long-term pattern that I had found but had not seen completed. I had discovered the pattern in its early stages but wasn’t sure it would continue into the future. By studying the Soros trade, I was able to find confirmation that it would continue and learnt another valuable lesson on the power of focus.
I will be sharing that lesson as part of my Currency Forecasting Online Seminar on 22 September, because it relates to a current setup on one of the currency pairs that I trade. If you would like to attend there are still a few seats left. Please email email@example.com or contact the office on 1800 622 858 to register.
Whichever market(s) you choose to follow as a trader, remember that the more you focus on a market, the more you will understand it and be able to work out what it is doing, which will help you to decide whether you should be buying, selling or staying out.