Simplicity in its natural form…

All markets do the same thing, it’s really quite strange to contemplate this but there is a common element between trading Soybeans, stocks, currencies, and futures… and that common element is, of course, that all markets are traded by human beings who all suffer from the emotions of fear, greed and panic.

What makes a successful trader? Why do some make fortunes whilst others try again and again only to fail dismally?

In my experience there is a holy grail in trading, and that is education.

You cannot hope to beat seasoned, practiced traders if you do not have a foundation of tried and tested tools, strategies, money management, discipline and patience.

I no longer ask anyone’s opinion as to market direction. I came to realize that most other traders, if not all, do not have any better sense of future proportion than I do. In any case, the other opinion will almost certainly be biased subject to their own time frames and current holdings. You could ask where the market is going, but a trader holding a large parcel of any stock will almost certainly tell you its going to go up. That’s why they hold the stock isn’t it? Anyone holding stock will almost certainly have a positive bias, which they will broadcast because that’s where they want the market to go.

I have found that my analysis relies on tested signals, most of which I owe to the fabulous work of W.D.Gann and Fibonacci.

I have seen many other interpretations of these great works, but as the title suggests, simplicity is the key.  Anyone with the right knowledge and determination can succeed, its truly not that hard. You need some proven signals, and the discipline to wait for these signals to appear, then apply a proportion of your trading capital to buying or selling the market.

It is pertinent here to stress that trading with the trend is the basis for all my trading. I don’t trade against the trend, or counter trends, I wait until I know which direction the chart indicates and follow the herd. I don’t want to lead the herd, or anticipate their next move, I am quite happy to follow in the wake and profit from that.

The easiest and simplest way to find a trend is the Gann swing chart.

The Gann swing chart simply follows the direction from the bars on the chart, and it is these swings and their patterns that are fabulous signals for trading profits.

Here is an example of a standard bar chart:

In the above graphic the days of trading have been marked. It is important to recognize that it doesn’t matter what market it is. You can see Tuesday went higher than Monday’s high, and Wednesday went higher than Tuesday’s high.

Thursday, however, went lower than Wednesday’s low, and Friday went lower than Thursday’s low.

The Gann swing chart has one rule: It will go up whilst the highs of the previous bar are broken until a low is broken, then it will go down whilst lows are broken until a high is passed, then it will turn up.

In the next graphic we see the Gann swing chart over the top of the previous graphic.

As you can see, the red line is the swing chart and an important signal is sitting here right in front of us. Notice that that second Monday is a lower top than the previous

Wednesday’s high. This tells me that the buyers on Monday were unable to rally enough support or momentum to push the market higher. It is a clear signal that lower prices are far more likely than higher prices in the short term.
By the second Wednesday I would be well out of my long positions and I would be considering a short trade to take advantage of lower prices.

One of my favorite patterns in market trading is an extension of the above pattern called three lower tops. You can see it below, Thursday is higher than Wednesday’s high so the swing chart turns up, but Friday is lower than Thursday’s low so the swing chart moves down. Now what I see is 3 lower top pattern; the high at 1 is the major high, and all this market can do is make lower tops (2 and 3). If the market breaks the last swing low (Wednesday’s low) after 3 lower top pattern I will almost certainly go short to profit from falling prices.
 
That’s the theory, now let’s look at real trading.

I have attached two screen shots from Market Analyst, and I looked for different markets to demonstrate my previous point that all markets do the same thing. I don’t think you could get any two more diverse markets than the AUD against the USD chart and Soybeans chart. And yet, here clearly marked for you are two examples of three lower tops on both charts.

The first chart is the AUDUSD. Note here that the third lower top occurred at 1.04.  Once the swing low at 1.02 is broken it is an indication of lower prices, the market then fell 500 points or pips, a bonanza for educated swing traders.

(Click image to enlarge)

The next chart is the Soybeans daily bar. You can see a major top at 1450, a second lower top at 1420 and the final straw a third lower top at 1390. Here now, soybeans should fall and indeed they fell from 1370 swing low down to 1230, a fall of 140 points for a fabulous profit.

You can add any other tools, signals, indicators…anything that helps you to trade is good, but the main thrust of any trading must be to trade with the trend. The Gann swing chart is ideal for recognizing and identifying the current trend, and Market Analyst software with its Gann swing overlay is a big part of my trading plan.

I hope this encourages you to delve further into Gann’s fabulous methods. They require some research and determination but they are well worth the effort.

My best wishes for your trading success,

Alan Oliver.
 

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