Putting on the Trader’s Hat

If you tune into the free Active Trader Webinars, you’ll know that we often spend some time breaking down markets. As David comments, you need to know your market like a cow knows its calf. If you want to refresh your knowledge here, I always find that Chapter Nine of the Number One Trading Plan is a great place to start.

When looking at the bigger picture, the season of a trend or section analysis is where the focus should go. By understanding where you are in the market, it is often an easier way to find scenarios as to where the market is likely to go in the future. While this article won’t specifically focus on the seasonality of a trend, we will look at how you can stalk potential trades once you have found where you are.

If we take a look at Newcrest Mining (ASX: NCM), the market formed a nice low in December 2016. I won’t spend much time on the analysis, but the 2016 December low sat on a 50% level. The market structure also provided an overbalance in time and price and broke previous ranges. This was the indication that more potential upside was on the cards.

If we focus on how you could have turned this into money, the market did push a few days strongly, hitting the 100% target of the very first ABC Trade. It gapped down from this level creating a little island, which is an indication that there might be a change in trend. Regardless of whether you knew if the bottom was in or not, by early 2017 the market has moved away enough to catch your eye.

The market offered three ABC long trades of which two were profitable and one was a breakeven. Based on the chart below, do you believe this was a strongly trending market? If you record this pattern and see a similar market in the future do you think you will be able to have the confidence to take the trades? Remember that the ABC system really thrives during a strongly trending market.

At this point, if you didn’t know that the market created an overbalance in price, you might have been waiting to see if the market could hold its levels at $22.00. If so, you’d like to see it close the gap it created with the Island before watching for any further ABC long trades.

In closing, I want to leave you with the idea of watching for strongly trending markets. While most often it is easy to eyeball a strongly trending market it is highly important that you refer to your major and minor swing charts.

It’s your Perception,

Robert Steer