Westpac Set Up
In this month’s article we keep it simple and take the usual approach of identifying and trading a price cluster in a chosen market. This time it’s Aussie bank top 200 constituent, Westpac, WBC:ASX; the desired result of the trade is a high reward to risk ratio, minimum 10 to 1.
The trade setup occurred in early August of 2024. As at 7 August 2024 the market had made three neat daily lows in a row all at $27.51 i.e. what we know as a small picture triple bottom formation. These triple bottoms sat at the 50% resistance level of the Ranges Resistance Card which ran from the April 2024 low to the August 2024 high. That level came in but 5 points away ($27.47) from the triple bottoms, and this is shown in the ProfitSource chart below in Walk Thru mode.
But there was more. The potential triple bottoms sat on an old top – that of 8 March 2024 and also market action was near 100% of the ABC formation as applied in the chart below.
Below are the details of the ABC that is applied in the chart above.
Now with enough reasons to anticipate a reversal to the upside and trade long, we look to the up turning of the daily swing chart. This occurred the next day i.e. 8 August 2024, with a new position of Westpac CFDs opened at $27.87 with initial exit stop at $27.50 i.e. one point below the triple bottoms.
As for a trading plan, the A-B reference range chosen was that from the May 2024 low to the August 2024 high with the trade to be managed as though a large ABC, Currency style. This is shown below, followed by the ABC details window.
On 16 August 2024 the market reached the 50% milestone and exit stops were moved to break even.
Then on 26 August 2024, the market reached the 75% milestone and exit stops were moved to lock in profit at one third of the average weekly range (27c based on the 81c average of the 60 weekly bar prior) below the 50% milestone.
And on 3 September 2024 the 100% milestone was reached and the trade closed at $31.69.
And now for the usual breakdown of the rewards. In terms of the reward to risk ratio:
Initial Risk: 27.87 – 27.51 = $0.36 = 36 points (point size is 0.01)
Reward: 31.69 – 27.87 = 3.82 = 382 points
Reward to Risk Ratio = 382/36 = approximately 10.6 to 1
If 5% of the account size was risked at entry the gain in account size would be as follows:
10.6 x 5% = 53%
If 5% of a $10,000 account was risked, i.e. $500, the reward would be:
10.3 x $500 = $5,150
On a final note, for those of you in the Ultimate Gann Course (or considering it) there was at least one simple piece of time analysis which added to the probability of success of this trade.
Work Hard, work smart.
Andrew Baraniak