back start next


[start] [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20] [21] [22] [ 23 ] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] [36] [37] [38] [39] [40] [41] [42] [43] [44] [45] [46] [47] [48] [49] [50] [51] [52] [53] [54] [55] [56] [57] [58] [59] [60] [61] [62] [63] [64] [65] [66] [67] [68] [69] [70] [71] [72]


23

7500 -

7000 -

6500 -

TQ 20/20 . 7991 CQG Inc.

Figure 7.9 December 1989 Japanese Yen Futures-a news-sensitive market. The currency markets, here the Japanese yen, are highly news-sensitive because supply is manipulated by govemment central banks. Note the "gaps" from day to day and the swiftness with which the trend can change. Except under exactly the right conditions, taking speculative positions in the currencies is very risky.

2B, OR NOT 2B? THATS WORTH SOME MONEY!

As mentioned in number 2 of the principles of a change of trend, sometimes the test of the previous high (or low) may actually break the previous high (or low) and then fail. Although this is really a special case of a test, when it occurs it usually signals a change of trend. In other words, this one observation, considered alone, has the greatest potential for catching the exact highs or lows; it carries more weight in terms of probability than any single one of the other three criteria for a change of trend. It has so much weight that it almost merits being called a mle:

The 213 Rule

In an uptrend, if a higher high is made but fails to cany through, and then prices drop below the previous high, then the trend is apt to reverse. The converse is tme for downtrends. This observation applies in any of the three trends; short-term, intermediateterm, or long-term (see Figures 7.11. 7.12, and 7.13).

A 213 on a minor high or low will usually occur within one day or less of the time the high or low is made. For 2Bs on intermediate highs or lows pre



Daily Bar Chart

2600 -

2400

2200

APR MAY

TQ 20/20 ® 199 1 CQG Inc.

Figure 7.10 December 1990 Daily Corn Futures Prices - a good market for setting stops. When condition 2 was met it presented a good, low-risk entry point for speculating on December corn. The market is liquid, and good points exist to set stops first at the low, and if prices break the minor high shown by the upper line, then you could raise your stop to that point.

Daily Bar Chart

2200

2000

1800

1600 -

I ili

Short-Term 2 -

III

MAY lUN

TQ 20/20 © 1991 CQG Inc.

Figure 7-11 December 1989 Soy Meal Futures - a short-term 28. This daily bar chart of soy meal futures shows a 2B on a short-term basis. A day trader would have profited handsomely if he were to have sold after the new highs were made and prices then broke below the previous highs.



1200 -

1000 -

TQ 20/20 1991 CQG Inc.

Figure 7.12 December 1989 Cocoa Futures-an intermediate-term 213. This daily bar chart of cocoa futures shows an intermediate-term 213. The previous intermediate high at A is first broken at B, then fails three days later.

ceding a correction, the new high or low point will usually break within three to five days. At major market tuming points, long-term 2Bs, the new high or low will usually break within seven to ten days. In the stock market, after the new high is made, the failure to carry forward usually occurs on low to normal volume, and the confirmation of reversal oc curs on higher volume.

When trading on the 2B criterion, it is essential that you admit defeat quickly if the trade moves against you. For example, if you are day-trading and you short the market on a 2B and then the market rallies to new highs again, you should immediately close your position when prices break past the new 2B high.

If they fail again, then you can short again, but you must limit your losses and let yourself get whipped out. As long as you take only small losses, youll "stay at the table" and be able to keep trying. When day-trading, the 2B criterion may be tight only 50°70 of the time, but if you limit losses when youre wrong and let your profits mn when youre tight, youll make a lot of money trading on this basis. The probabilities of success using the 2B in the intermediate term are much higher.

A perfect example of an intermediate 2B occurred on October 13,1989 on the Dow Industrial averages (Figure 7.14). On October 9, the Industrials set a new high of 2791.40 on low volume, and th e new high was not confirmed by the Transports-a definite intermediate bearish indication. On the following days the market continued to sell off, and on October 12 closed at 2759.80, just 7.3 points



[start] [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20] [21] [22] [ 23 ] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] [36] [37] [38] [39] [40] [41] [42] [43] [44] [45] [46] [47] [48] [49] [50] [51] [52] [53] [54] [55] [56] [57] [58] [59] [60] [61] [62] [63] [64] [65] [66] [67] [68] [69] [70] [71] [72]