P1: PIC/PIC c07
August 12, 2008
Printer: Yet to come
HIGH PROBABILITY TRADING STRATEGIES FOR ANY MARKET AND ANY TIME FRAME
in a long position. Note that the stop-loss was adjusted only after the minor swing high was taken out, which signaled the minor swing low should be complete. If the XAU immediately declined and hit the new protective sell-stop, at least a small profit would be made. 3. On September 4, the XAU reached the 61.8% retracement before making a second
daily momentum bearish reversal. The stop on the ST unit is now trailed at the 1BL. No change to the stop on the second unit.
Trade result (ST unit): On September 9, the XAU took out the trailing 1BL and, at 150.36, stopped out the ST unit, which had been entered at 132.34. Profit on half the position: 18.02 (150.37 â€“ 132.34). As of September 9, the XAU has reached the 100% alternate price projection of the first swing up projected from the August 24 minor swing low. The 100% APP is not shown on the chart. Trade management (LT unit): The stop on the second unit is adjusted to a close at 139.42 or below, which is the potential Wave-1 or A closing high. Should the XAU decline and close below the potential Wave-1 or A closing high (see August 24 horizontal line) for an overlap, it would void any probable bullish pattern and be a definite reason to exit the second unit. Figure 7.4 adds the daily data through October 9. The XAU continued in a strong bull trend to a new high as anticipated. On Friday, September 21, the weekly momentum reached the overbought zone. The September 21 date is marked on the daily chart. If you look back at the weekly chart, at least in the past 18 months or so, a weekly momentum bullish reversal has been made within a couple weeks of each time the weekly momentum reached the OB zone. The XAU upside should be relatively limited. A tactical decision during this period was when and to where to adjust the stop on the long-term unit. From early September through September 21, the XAU did not make so much as a two-day correction. The daily momentum hung in the OB zone and did not make a momentum cycle to a bullish reversal to give a logical place to adjust the stop, at least based on the daily momentum cycles. Trade Management (LT Unit): Following the wide range up day on September 18, the stop was adjusted to the September 5 low. Why here? No firm reason except it was a bit below the 61.8% retracement as of the September 18 high (retracement not shown on the chart) and the low of a narrow range day prior to another wide range up day. Few traders would keep such a wide stop on a position with an open and unrealized profit, but the objective is to remain in the trade until there is some market condition that suggests the bull trend is near completion. Most trends make at least five waves or sections, as you learned in Chapter 3. As of September 18 only a possible Waves 1 and 2 were complete. A Wave-3 high and Wave-4 correction followed by a new high should be made before the pattern conditions have met the minimum structure for a trend. A Wave-4 retracement is typically 38.2% to 50% of Wave-3, so the stop is kept away from any typical retracement likely for a Wave-4.