Welcome to our first article for a brand new year! In many ways, we are currently in our own personal ‘First Range Out’ (FRO) for the year. In the Number One Trading Plan, David teaches us to pay attention to the FRO because it shows us what to expect for the rest of the move. You may recall that in David’s example, the FRO was 256 points, and as the move unfolded, we saw the number 256, as well as 150% and 200% multiples of 256 appearing in the market. The entire move ended up being four multiples of 256. So, the FRO is important to watch!
This article represents the First Range Out of the Platinum Newsletter for the year, so I thought we’d kick off with an important discussion on Classic Gann Setups. David says that there are usually only three or four really strong turns on a market in a year, which gives us six to eight potentially strong trading opportunities each year. David isn’t talking about six to eight ABC trades here. He’s talking about six to eight opportunities to enter close to a turn and begin a trading campaign that may involve two, three or even more trades. How do we get eight trades from four turns? Each turning point represents two opportunities – we can trade into the turn and out of the turn. For example, if we know a low is coming, we can take SHORT trades DOWN into the low, and LONG trades UP out of the same low. On page 68 of the Ultimate Gann Course, David refers to these as Type I and Type II trades, where Type I trades are WITH the trend, into a turn, and Type II trades are AGAINST the trend, out of a turn.
While you wait for the next Classic Gann Setup on your own market, it is a good idea to study previous examples of major market turns. David says that your hindsight will become your foresight – but only if you use it often enough! The example that we will look at in this article is the 8 December, 2017 low on the Australian Dollar (FXADUS), which I shared with my 2017 Ultimate Gann Course Coaching group as it was unfolding. In this article, I will guide you through calling the low before it happened, and then in the video, we will discuss how that low could have been traded. The setup is shown in Chart One, below.
One of the first things that you should notice from the chart is that the low came in 90 degrees after the 8 September, 2017 high, which was the yearly high last year. I remember the first time I tried to apply Time by Degrees to a trading setup. I can’t remember the stock I was applying it to, but I remember the result – nothing happened! Naturally, I expected better from David’s ‘most profitable trading tool’! It always seemed so easy when David did it, but somehow the results weren’t as earth-shattering when I applied them myself. In this Australian Dollar example, 90 degrees after the yearly high gave us a decent low and a very strong run-up. So why did it work this time?
The best answer that I can give you is that there are usually multiple reasons for a decent top or bottom to come in. It’s never just Time by Degrees, or just Squaring Time and Price, or just any other technique. 90 degrees after a turn is a good place to watch for the next turn, but if there is nothing else going for the trade, I wouldn’t be particularly confident that we were going to see a turn. If, on the other hand, we were 90 degrees from a turn AND we had some equal Time and/or Price Ranges coming together, and we had Squaring Time and Price to back us up, and maybe even a Square or two calling the market, then I’d be a lot more confident that we would see a turn. Remember, David always said that Time by Degrees was his most profitable trading tool, but he never said he used it as a stand-alone tool.
In this example on the Australian Dollar, there were lots of reasons to expect the low that came in. By that, I mean there were at least a dozen reasons for me to suspect that a price of 75 cents (or thereabouts) on 8 December could potentially give us a very strong low. How many of those reasons can you list? Open a chart of FXADUS in ProfitSource, go back to the 8 December, 2017 low and start looking!
Now, in years past, I’m sure many of you would not do this exercise. You might have said ‘I’m too busy’, or ‘I’ll do it next time’ or ‘I don’t trade the Australian Dollar’. You might have come up with any number of excuses to put the exercise off. That’s why I’m going to write a ‘filler paragraph’ here to give you time to stop and actually go and look at this low. That’s right, no new information in this paragraph, it’s simply a decoy paragraph to save you from yourself, and to stop you from skipping ahead! Remember, you might learn a little bit if I give you all the answers, but you’ll learn a lot more if you go and do the work yourself. If you’re still reading this and not doing the exercise, then how can you expect 2018 to be any better for you than 2017? Last chance – go to FXADUS in ProfitSource and start looking!
How did you go? Did you find a dozen reasons? If you did, fantastic! Keep looking and you’ll probably find more. However, if you didn’t find a dozen reasons, that’s ok. Put a reminder on your calendar or in your phone to come back and look at this example in three months. Then, during that time, work hard on your study to improve your analysis. Do you remember the five elements of a Classic Gann Setup? Time, Price, Volatility, and, wait, what were the other two? If you’re not sure, you can look them up in the first few pages of Chapter 2 of your Ultimate Gann Course!
Now, I won’t show you absolutely everything this trade had going for it, but I’ll show you some of the charts from the recording I gave to the Ultimate Gann Course Coaching group on the morning of 8 December, 2017, which was the day of the low. In Chart Two, I have started with Time by Degrees, showing that we were 90 degrees from the yearly high.
In Chart Three below, you can see that just as we were approaching 90 degrees after the yearly high, the Australian Dollar was also approaching the 100% repeat of its previous weekly swing range in price.
So, we had a 100% repeat in Price (history repeats!) coming in 90 degrees after the yearly high. What’s even more interesting is that the 100% repeat in Price took 200% of the Time. That is, the weekly range of 28 days repeated 100% in Price over 56 days, or 200% in Time. This is shown in Chart Four below.
Are you starting to get a sense of the harmony here? How many of these things did you pick up? Should we keep going? In Chart Five, we can see that in addition to our Time by Degrees and Time and Price Ranges, we had a 1x1 Gann Angle squaring out major lows.
Of course, the market could still have pushed down through that Gann Angle, but until it does, we can watch it for support. In addition to this, we also had Balancing Time of 346 days and 347 days between the major lows, which is shown in Chart Six below.
David tells us that there is always strong harmony around the major turns. Can you see the harmony in these charts? If I showed you the Balancing Time in isolation, how confident would you have been in the forecast? Or what about the Gann Angle in isolation? Or the Time by Degrees in isolation? Each of these techniques are important to watch, but the most important thing about them is that they are all happening together, and that’s what you’ll find at the best Classic Gann Setups.
Now, this is all easy to pick apart in hindsight, and it’s actually ok to do that! In fact, David encourages us to do this all the time. He says “your hindsight will become your foresight IF you use it often enough”. He doesn’t say “over time, your hindsight is guaranteed to become your foresight” or “your hindsight will become your foresight even if you don’t do any work!” He says that your hindsight will become your foresight “IF” you use it often enough. For the record, though, this work was completed and given out to students before the low came in.
If you made a serious attempt to break down this Classic Gann Setup in ProfitSource or other trading software, then congratulations! You have just used your hindsight, which means it is one step closer to becoming your foresight. Send us an email and tell us how many reasons you found! We’d love to hear how you went! If you didn’t bother to do the exercise, there’s not really much else I can do to help you in this article. I suppose we could send Rob and Andrew around to your house to force you to do it, although ‘enforced learning’ is not a service we offer at Safety in the Market. You’ve got to want to do the work yourself.
Now that we have a Classic Gann Setup, we’re ready to look for a trade. In the accompanying video, I’ll take you through a day by day breakdown of the low, and discuss with you some of the ways that you might have approached it.
All the best