back start next
[start]          [ 10 ]                                                                                
Rules For Determining Culminations Volume of Sales
(1) At the end of any Bull Campaign or rapid advance in aif individual stock, there is usually a large increase in the volume of sales, which marks the end of the campaign, at least temporarily. Then, after a sharp decline on heavy volume of sales, when a secondary rally takes place and the volume of sales decreases, it is an indication that the stock has made final top and that the main trend will turn down.
(2) If the stock holds after making a second lower top and gets dull and narrow for some time, working in a sideways movement, and then breaks out on increased volume, it is a sign of a further decline.
(3) After prolonged decline of several weeks, several months, or several years, at the time a stock is reaching
bottom, the volume of trading ahould decreaae and the range in fluctuation should narrow down. This is one of the sure signs that liquidation is running its course and that the stock is getting ready to show a change in trend.
(4) After the first sharp advance (when the trend is changing from a Bear Market to a Bull Market) the stock will have a secondary rally after the first sharp decline. If the volume of sales decreases on the reaction and when the stock moves up, advancing on heavier volume, it will be an indication of an advance to higher levele.
Gann continues, "These rules apply to the general market, that is, to the total sales traded in on the New York Stock Exchange-daily, weekly or monthly- as well as to individual stocks.
SUMMARY; SALES INCREASE NEAR THE TOP AND DECREASE NEAR THE BOTTOM, except in abnormal markets, like October and November of 1929 [and October of 1987] when the market wes moving down very fast and culminated on large volume of sales, making a sharp bottom, from whioh a swift rebound followed. As a rule, after the first sharp rally, thsre is a secondary decline on decreased volume, as described above under Rule 4."
TRENDS AND TREND FOLLOWING TECHNIQUE
Tops, bottoms and consolidations are probably the hardest trading to profit from in the market. On the other hand, there are the trends, and in trading, you will always make the most profit by following the trend. If you follow the main trend and put in the time necessary to study its nature, holding on to positions until you g#t a definite indication of a change in that
trend, you will maks big profits. It is much better to maks just a few trades per year, and make large profits from those trades, than it is to make many trades and small profits. As Gann said, "Let your rule be to GO WITH THE MAIN TREND, AND NEVER BUCK IT." If there is a long bull or bear campaign in effect, follow it, but dont allow yourself to become constantly bullish or bearish. Look for the indications of trend change, and, when necessary, uae them as evidence to modify your strategy.
In fast, advancing markets, in the last stage of the campaign, reactions get smaller as stocks work to higher levels, until the final section, or run, has ended. Then comes a sharp, quick reaction, and a reversal in trend.
In the last stage of a bear market, after all old bottoms and resistance levels have been broken, rallies get less or smaller as prices work lower. Therefore, people who buy, have no chance to sell on rallies until the final bottom has been reached and the first rally takss place. This is why it never pays to buck the trend in the last stage of a bull or a bear market.
The word trend, in and of itself, is an indication that it is a lasting phenomenon. Up trends are generally punctuated with consolidations, and then, a continuation of the trends. Down trends often show a strong bear market rally shortly after the initial break from top, and consolidations are, also, a feature he re.
Once you are convinced that a trend is in force, dont wait too long to go with the trade. If you wait for a major move to occur before you place a trade, you may find yourself buying a top before a correction, or selling a bottom before a rally. Although, the decision on the main trend may well be correct, you will find yourself stopped out of the trades on the corrections. Determining the right time and price to buy during an up trend or sell during a dcwn trend, will become apparent from later chapters in this book.
Early in an up trend, it is a wise deoieion to buy stocks that are already strong. Stocks, which have broken to new highs are excellent candidates for continued moves up, as are those which are showing rising bottoms. In a down trend, stocks, which are weak to begin with, are the best candidates for early , short sales.
High momentum moves in trending situations occur at the end of cycles. If you will look at the Dow charts included in the chart package, you will see that this type of move happens on occasion. Often, they are associated with the sixty year cycle, at the end of the thirty year cycle, as seen in the late 1920s, 1950s, and 1980s. During a high momentum movement, as we have been witnessing, a pattern of trading or movement will develop. As the move becomes more mature,corrections against the move will begin to become smaller in time and price. On a daily basis, often the pattern will appear as a slower moving stock, moving up and then giving a three day correction down to find a higher low. Prioe will pick up momentum on the next move up, and then correct
for only two days. Momentum increases, again, and the next correction is only one day in length. This type of acceleration will usually show the overbalance of price and time (mentioned earlier and discussed later).
The only way one oan enter into a movement of this type, is to buy the same correction in time as the previous correction, or to buy the breakout above the high price made before the correction occurred. There have been many high momentum movements of this nature, running for weeks with corrections being only one or two days in length. Fast moves, generally, come from bear market bottoms. These moves usually run three weeks up, then move sideways three to five more weeks, and then accelerate, again, into another sideways movement. This is often how stocks and markets find significant tops and bottoms, and expire very specific cycles. We will discuss this later.
During this type of high momentum move, the first indication of a trend change would be for that pattern of acceleration to overbalance or change. That is to say, a correction will occur against the trend which is greater in time and price, than previous ones. If previous corrections had been four days and four points, and then three days and two pointe, and then two days and one point, or a similar type of configuration, and a (for example) five day, five point correction ensues, then it is an indication that the end of the move is nearing
The first time the previous largest correction in both price and time for a run is exceeded, you can assume the trend is changing and therefore, change your strategy. Of course the market needs to have run out three or more sections. Thie does not mean that a pally cannot take place after this definite signal of reversal has been given, as usually after the first signal of a change in trend is given, there is a secondary rally xn a bull market and time has to be allowed at top for distribution to take place. Therefore, just because you get a definite indication that the main trend has changed, do not jump to the conclusion that you oan sell short right at that time and that there will be no rally. Alweys sell on rallies, if possible, although there are times that you can sell at new low levels or when bottoms are broken but that is after the trend is well established.
The following is Ganns description of thie technique. "On this chart we have drawn a horizontal line across the chart in red ink; then beginning at "0" on this red line, we number up the number of points we want to record, which is the total number of points the Averages advanced before any important reaction; then we number from the red line at "0" to record the number of points the Averages decline from atop before a change in trend. For example:
A stock may advance 100 points and at no time during the advance reach more than 10 points- then after a final sharp advance, the first time it breaks back over 10 points, it is an indication that support has been withdrawn and the trend has
[start]          [ 10 ]