The art of trading

Apart from the motto “sell high and buy low” and the behavior pattern “don’t turn too greedy” there’s another absolutely crucial tactic for successful trading: “the trend is your friend”. Well, the trend in the US stock markets is clearly pointing upwards again. Everyone who missed the train last week will have to try now to climb on the bandwagon.

If we traders were able to implement always and evermore those pithy pieces of wisdom we would all be billionaires already. But mostly everything is fubar.

„Buy low“:

In the last update on the stock markets, two weeks ago I actually analyzed optimally:

„It’s been going downwards for 7 weeks. From my point of view, the fact that not any white candle is visible during the decline shows its corrective character. The S&P 500 might still go a little bit lower producing a marginal new low in the 1250 environment or confirming the existing low (1258) before a contact of the market with the support Gann Angle (it will proceed at 1258 next week) will be able to ring in the rebound.

The odds are extremely in favor of a significant rebound to happen here in the environment of the support Gann Angle. A reversal candle would be the first sign for a rebound. Correspondingly, in case of a reversal candle we’ll go long towards the week closing. In case of the 1258 low or if next week even a lower low is being generated SL will be at that new lower low. Target is the 5th double arc being the Main Target for the entire move. The first important resistance where the first stop of the rebound on daily basis will have to be expected is lying at 1298.”

„Fubar“:

Unfortunately the week before last no reversal candle showed either in the Dow, or in the S&P 500 or the NASDAQ-100. The S&P 500 closed 3 points lower than the previous week generating a red candle. Certainly the 1258 low was confirmed by 1262 but the support Gann Angle wasn’t touched again. I remember quite well that I was going over the weekly charts 15 minutes before week closing making out no buy signal… What followed last week was the most powerful 5 day rally since 2005 (that’s what I read somewhere yesterday).

„Sell high“:

Better cover on Tuesday. Monday will be American holiday, and on Tuesday the market should mark a top. During the year high 2011 already the red dotted resistance line led to the last violent correction phase which shouldn’t be easy to be overcome. At 1342 this striking weekly resistance is proceeding. In case that resistance is exceeded at least a little bit, maybe 1345, we’d have the first symptom of the resistance to be broken in the course of the coming days and weeks.

“Climb on the band wagon”:

It would take an idiot to buy at the top (another piece of wisdom!), so we’ll wait for the first significant retracement to take along the rally until the 5th double arc. That one is lying at 1318 being the clearly identifiable support line which arises from the intersection of two squares on the very left. At 1318 we’ll look for the entry into some longs on daily basis there. The lowest retracement to be expected would be the horizontal square line support at 1298.

„Don’t turn too greedy“ – A view to the actual daily 3 Candle GUNNER24 Up of the Dow Jones:

This is where we went long last Friday on the basis of the analysis of 06/19: 

"For the second time the Dow closed within the 3rd last Friday. That’s another sign for the possible end of the decline. Monday through Thursday will still be lying within the temporal influence of the double arc. The appearance and the character of that influence are not foreseeable. The prices are often pulled down within the lines of a double arc, and frequently within the lines a short-term counter move takes place. The courageous traders might go long in the environment of the support Gann Angle on Monday. SL is below the permitted June low. We’ll buy the Dow in case of a significant break of the 3rd double arc with first target 12300."

The temporal sphere of influence of the 3rd double arc lasted till Friday of the week before last. Not before last Monday the market was able to get over with the downwards pressure of the 3rd double arc which had lasted for months. That’s where we went long. Many readers of our Forecasts are supposed to have never realized that clearly which significance and consequences the arcs or the double arcs may have concerning the markets.

From my experience the horizontal, the diagonal or the trendlines, respectively are not nearly that important for the trading since they can never take into consideration the time. They only show price reactions, but you can never know exactly how long they will last or which consequences they may have for the prices. Besides showing the price reactions an arc or a double arc mostly indicate as well how long those may last.

In the hindsight, the conduct of the Dow at this double arc makes the reaction of the last 5 trading days clear and above all optically visible. The double arc is squeezing and pressing and pushing the market downwards day by day, it wants to go up, there are some buyers at the day lows, little upswings on daily basis. The market wants to get up, but again and again it is pressed down by the double arc. If time is mature like in this case after months the steamer MUST let off its excess pressure – with the strongest 5 day rally for years in this case.

You see in the chart…we mustn’t be too greedy. The Dow is very close to the 4th double arc. Some extreme turns are always possible there. I covered 10 minutes before week closing. The Dow might have “jumped up” to the 4th double arc during the last 10 minutes. In that case this spike by the week closing might have provoked a huge down gap on Tuesday. The 4th double arc on daily basis should really result in a visible reaction, in a new sort of downwards pressure. 12300 at the support Gann Angle is a logical retracement target, that’s where we’ll look for the new long entry.

If the 4th is broken upwards on daily basis as early as on Tuesday or Wednesday we’ll go long again. No problem, you’d scarcely give away points. Target is the 5th double arc at 13065.

We’ve got a new upwards trend. The daily setup is showing us the 5th double arc as the main target. But how is that recognition going with the big picture?

On daily basis the end of the temporal influence of the 3rd double arc facilitated the rapid price rises of the last days. Applied to the actual monthly setup the rally Gann Angle newly resisted thus triggering the rally. June is showing a very long lower wick figuratively expressing the strong support function of the Gann Angle. The June conjured a reversal candle on the floor. July should first continue the upwards trend until 12865 for the moment (upper line of the 3rd double arc) where a test of the year high will take place (tentatively corresponding to the 1266 in the S&P 500).

If the Dow repeats its last year’s conduct at the rally Gann Angle – at the green/red circle – where May 2010 marked the first red candle, June 2010 marked the reversal candle and July 2010 marked the long white candle – July 2011 shall soon be quoted above the previous year high. The red dotted resistance diagonal at 13065 might be headed for. From the daily setup that should happen the week before the last of July.

If the Dow maintains its position above the 3rd double arc, hence above 13.000 then we may build up some long-term long positions – maximum target 14.450 until April 2012 if the Dow follows the Gann Angle so far. But more likely the top of the bull market will be marked at 14150 in January 2013 (the market will top near the intersection 2*1 Gann Angle/4th double arc).

Anticipate what’s coming next – the trader’s piece of wisdom # 5!

Within its downtrend gold reached the weekly support at 1482 on Friday evening. The weekly low was at 1478.3, by the Friday close it saved itself above the weekly support. From the detailed analysis of last week we know that we may expect the 1443 at the end of July.

Actually Friday would have been an ideal day for diving still much deeper downwards. The approach of a long weekend in America with the expectation of a weak trading on Monday should have really had to make gold close below the weekly support of 1482! All the same by the end there was a recognizable rebound from the 1482… in addition the monthly GUNNER24 Support in silver (about 33.60) resisted for the umpteenth time. Concerning our trading success the weekly and the monthly supports are always very important. They always take a detailed analysis to derive the duration and the volume of a rebound and even a possible change in trend.

We always have to anticipate what might come. For that I use the daily gold chart again analyzing it with the hidden arc, as I did in the forecasts of 06/19 already:

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