This article is a follow on from the previous one ‘LESSONS IN GEOMETRY’. It is not so much about words but the pictures that the market provides and translates into charts, which at times can be pure geometry. The MARKET ANALYST 6 Software is a wonderful back up to some of the hand drawn charts of the various styles to help you trade with the trend.

I consider the half hourly chart on the ASX 200 index as the most important one you should maintain. It is well worth the effort along with a 2 pt. P&F chart plotted at the same time as the price action. I do mine from MA 6 Tic data with 4 screens – 2 charts of SPI & index and tic data below.

It is making my life so much easier to follow these exciting and volatile markets intraday where attention to detail is so important.

The previous article contained the illustration of the half hourly almost up to the April 2010 high of the then bull market. It provided some wonderful trends, especially using Gann square overlays. The current chart up to 20th May shows how quickly the bear can take hold again.

The methodology which I have been teaching for years produces excellent results.

This was described in detail in the last issue. The Directional Movement System has been outstanding in recent weeks, providing the crossover sell signals as the market topped, confirming a market to be traded from the short side. When the -DI crossovers the +DI – you take the short trades. A trending ADX, usually at a low level as the new trend gets underway, is a measure of the strength of the trend and not the direction. A rising ADX is a trending market and this eventually provides a signal that the trend has run its course. Combined with a Parabolic Stop to take you out of the trade, an excellent exit level for a very profitable trade. It can rise to levels of +50 plus. I always caution against taking positions when the ADX is trending strongly.

My favourite combination after strong acceleration is simple crossover of 3/5 period moving averages. You need to follow DM on the various time frames to check for yourself how well it functions even on a 1 minute chart.

I try to leave the fundamentals to others  ( mostly yesterday’s news)  and concentrate on the price trend. Boarding up the windows is not a bad idea. Investors who bought into the recent top area of the market have now joined the losers, having been lulled into a false sense of security mostly from press and radio comment.

Whether we have just had a bear market rally off the March 2009 low, or a bull market is mostly irrelevant now. It paid to follow the charts – technicals paved the way. If you are trading the stock market it is advisable to maintain charts which show the monthly, weekly, daily and half hourly trends. The BIG PICTURE is an important part of your analysis. Up to-date charts are an absolute necessity in this environment of increasing volatility. Getting in early in any trend offers the best rewards and the least risk.

Money management, if not practiced, can to be a road to ruin especially in futures and derivatives. Dr. Mircea Dologa is most adamant about MM and preparation for trading.

His book ‘Volume III INTEGRATED PITCHFORK ANALYSIS’ should be in your library. I firmly believe he is the most knowledgeable person on the planet when it comes to technical indicators, which of course are available in MA 6. The Gann and Jenkins Tools are the ones to be using now to advantage, and also the Astro section.

I believe Gann was 90% astrological.

SPI traders continue to be at the mercy of SYCOM which mostly dictates the opening trend of our market. Their overnight ranges can be extraordinary. It is advisable to do technical work on the Overseas Bourses and particularly S&P 500, Nasdaq 100 and the Dow Jones – the most quoted index on the globe. As I write this article without the benefit of action to come in Thursday night 20th May, my three trusty P&F charts show these indices to be just holding UPTRENDS. Counter trend rallies can come out of the blue and be sharp and nasty and the trader needs to be prepared, but overall it is important to trade the main trend. I view moving averages as one of the simplest forms of trading with the trend. Likewise the P&F charts shout when the others stutter. The opening and closing sessions of the SPI are worth plotting P&F charts, especially the session 4.004.30 pm which shows the number of contracts traded at the various price levels. This can give a lead for the next day or continuing into the overnight Sycom where the smart and informed money comes into the market. The late P&F can give reliable targets for what eventuates in Sycom. I put the overnight range as a red bar on my chart – it can be very helpful.

It is a daunting experience to be “caught” on the wrong side of any futures markets but using the right charts will assist in providing the “trigger” points. I recall Dr. Alexander Elder, author of ‘TRADING FOR A LIVING’, stating in one of his seminars that when he enters his dealing room, he always says a little prayer “please don’t let me be a loser to-day”.

I consider it a privilege to be associated with the MARKET ANALYST TEAM. All Australian and thoroughly professional at all levels, I especially value their excellent support team.

On a personal note, I am eagerly awaiting a visit by Dr. Mircea Dologa from Paris as he has promised me more lessons with Gann and Jenkins Tools in MA 6. I hopefully will be able to report on these in a future article. On the occasion of my recent 80th birthday, David Fuller of Fullermoney  ( a P&F enthusiast & expert too )  sent me an email with a hug, stating that if he ever meets Margaret Thatcher he will tell her she is the Dawn Bolton-Smith of politics! He did say that still learning at 80 or his more modest learning at 68, it is wonderful and what keeps the brain alert. Investment analysis is, or should be, a continuous learning curve until we run out of time. He concluded by saying just think how much more I will know at 100! There is a message in this for all traders coming from one of the best in the world.

The various charts accompanying this article will provide the accurate information to copy deadline, and are worth studying. The special P&F Chart on ASX 200 – 20 pt one box is the simplest, and at times provides the early and definitive signals particularly when there is a major change of trend. I used Gann 144 Square overlay on this chart and last week there was some important geometry, a set up which I had learnt from the late Phyllis Kahn i.e. when price is at a 45 degree angle juncture and is 2/3 in time  ( horizontal Axis)  and 2/3 in price – when this breaks, expect a MOMENTUM MOVE DOWN. This happened this week with the index at close 4316 on 7th May 2010 – the row of 0’s down for a 4320 plot. Our market has broken major support –the bear cometh again! Looks simple in hindsight, but exciting if you noticed it with foresight. I suggest all serious traders keep this chart. If you would like a scanned copy which you could transfer to a sheet of chart paper, you could send me an email: dawnboltonsmith@optusnet.com.

This chart will provide a valuable part of your roadmap for the future. By putting the plots on by hand, you have an awareness of the prevailing trend. It is the oldest form of charting in this day of sophisticated black box systems, and at times tends to outshine them.

Chart No.  ( 1 )  ASX 200 Half Hourly to 20/5/10

 ( 2 )  ASX 200 Half Hourly – a recent example of a Gann Square 144 overlay- pure Gann and Geometry from the 7th May low which provided a sizeable bounce in the market.

 ( 3 ) ASX 200 – 20 Pt 1 box P&F to 20/5/10

 ( 4 ) BHP – 5 minute chart from MA 6 screen dump  ( the printer does not do it justice ) . One of the big heavyweights in the index. A sell signal from DM on 20
April at 42.80 +DI 29 –DI 38, ADX 16.

20th May - 36.75 +DI 9 – DI 36. ADX 49. Some nice signals there for day traders. So far a trouble free ride for the shorts and put options. The Resources Tax news at 39.53 – the market was already in downtrend. A blue print of this methodology to protect and preserve capital.

Good Trading.

Dawn Bolton-Smith

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