The health care sector is moving strongly, though there is indecision and speculation as to where it will go and by when in the overall market. If you wait for these answers to hit the front page of the papers you will be waiting too long. I prefer to focus on what the market is showing me today and take the trades that my plan is signalling to me. CSL has been a great performer in recent times, and using ABC trading it has led to some good results. If you participate in the Q&A Webinars, you will note that I have been talking about CSL for some time due to its strongly trending market.

Being attentive with your approach to the market and focusing on the “now” ensures that you don’t get carried away with only looking for that one “perfect trade”. Usually, when the trade looks perfect, it can have an opposite effect because everyone is already aware of the perfect trade. I see a number of traders getting caught up in a mindset that has them focusing on the perfect trade or on a particular outcome for their favourite share. They get fixed on one perspective, meaning they lose sight on all the other opportunities and tie up all their time and emotion in this one outcome, either waiting or praying that it will happen.

Focusing on the core of what ABC trading gives us, it ensures that we are trading with the trend. No matter whom you take your lead from in the markets whether it’s Gann, Elliott, or Livermore they all maintain that trading with the trend is the smartest way to participate.

CSL has trended very strongly on a daily and weekly chart since 2012.  With a market that is moving in this way, we could have been gearing ourselves up for a number of trading opportunities using ABC’s. Let’s take a look at the five most recent trades.

The first ABC long trade was signalled for entry on the 23 August 2017, which was filled and spent 4 days going sideways. By following the standard 1 point/cent behind Point C you would have been stopped out for a loss. Given that CSL is trading at $126.00 it would not be sufficient to put it 1 point behind Point C. I would look to use 1/3 of the Average Range, which would be around 90 cents on that particular day. In that case, the ABC would have reached 100%. Given you were stopped out, a lot of people would have walked away at this point due to the loss and would have missed the next proceeding opportunities.

Chart One

The second ABC that was generated was during the first ABC, so if you were still in the first ABC, this could be an extra entry point. Given you did enter this trade, the market was able to hit 50% in the first day, so based on your stop management you would have moved your stops to entry plus commission. This would have stopped you out the proceeding day. Another interesting point here is that if you were using the 1/3 of the Average Range as the initial stop, the market was never able to get back below this point. This is worth some deeper research on all markets, as it never gets old hearing that people have been stopped out and the market runs the direction they originally thought.

Chart Two

The third ABC, similar to before, was able to hit 50% before coming back and stopping you out at entry plus commission. As you have probably noted the market is re-testing Point C every time an entry is made. In the last three consecutive trades, you would have been filled, followed by a re-test and a continuation of the trend. This being the fact, would it be worth waiting for the market to fill and confirm its entry by waiting for the pullback and then entering into the market?

Chart Three

Given you entered the fourth ABC with a standard entry you would have been stopped out. The market would have filled you and spent the rest of the day going down. If you had been monitoring these trades progressively, as soon as you saw that the market re-tested Point C, would this give you enough confidence to re-enter the trade? If this were something you chose to do, you would have a weeks worth of up days to 100%. While, it might be easier to say in hindsight, remember the major trend has been up for a good part of the year. The 2-day and 3-day also show that the trend is up.

Chart Four

The fifth and final ABC trade once again re-tested the Point C after entry was obtained. Although this time the market wasn’t able to break the previous swings low like it had in the previous four trades. Entry would have been filled and the market ran consecutively for 9 days into 100%.

Chart 5

Since mid-December 2017, CSL has been moving sideways in a range of $4.00. It wasn’t until mid-January that the market has been able to break away in a strong fashion.

As a final note, it will be interesting to see how the market performs with the next ABC trade. By all means, you should not be running out and taking an entry after you read this. My thought would be to look out for the next ABC trade and see what happens with the re-test of Point C. Remember that when a market trends this strongly, the next trade may only be around the corner.

 

It’s Your Perception

Robert Steer