Another Use For ABCs

(adsbygoogle = window.adsbygoogle || []).push({});What do you think of when you see ABC Points on a chart?
Very probably, you look at it as a potential trade, and then proceed to evaluate its strength or weakness. However, there is another very powerful use for ABC Points, and that is to give potential prices where moves may end and the trend may turn. As usual we will illustrate by looking at Santos (STO:ASX).Chart 1 — Weekly ABC Pointsclick to enlargeChart 1 is a weekly chart of Santos, and shows that since the October 2008 low there have been 2 ABC (weekly) long trades.

Neither of those would have been profitable to trade, but they were both very profitable to help analyse the bigger picture.You can see that the first Point C was followed by a 'bad' outside week, which turned the swing chart up but then came down and penipu broke the low of the Point C week.
The Swing Overlay illustrates that this new low was not accounted for by the standard swing charting rules.However, for analysing further moves in this market, this is where we should place our Point C. This is easily done by using the manual ABC Pressure Points tool in ProfitSource.

See Chart 2 below.Chart 2 — Analysing Resistance Levelsclick to enlargeThis chart is quite busy, so work through it carefully. Firstly, you can see the new ABC points plotted. The high (circled) of 27 March hit the 133% milestone of this range.

On the Road Map Chart from the Smarter Starter Pack, David Bowden labels this as 'Gann and Fibonacci area. Approx 15% of trades get into this area.' So the odds are increasing for a reversal.On its own, however, this would not be a strong indication. But always when analysing a market, you must be looking at Resistance Cards.

For those not familiar with them, Gann used percentages of high and low prices to forecast future turning points. He also worked out percentages of the range between a high and a low. These are called, respectively, Highs, Lows and Ranges Resistance Cards.Previous articles have discussed the Ranges Resistance Card between the June 08 all-time high of (now) 20.63 and the October 08 low of 9.33, and in particular the 50% level of that range.

That level is again marked on Chart 2, as well as the 62.5% level. This is an important resistance level, being very close to the Fibonacci level of 61.8%.Whenever you have an important low form in the market, you should create a Lows Resistance Card, as percentages of that low price will identify resistance points to watch during the next move up.

This is marked in brown on Chart 2. Look how the 50% from the October low held up the market in November, December and January. The 75% is 16.33. Now we have a 'price cluster' from the Ranges and Lows Resistance Cards to combine with the 133% milestone of the ABC trade.
If you care to glance back to Issue 303 of the Trading Tutors Newsletter you can see some time reasons for 27 March being a turning point as well.Here is one more example that you can create for yourself to expand on what we have covered here. The second ABC trade in Chart 1 above just failed to reach its 50% milestone in the week of 8 May.

We have discussed previously how the trading halt and capital raising the following week was followed by a dramatic sell-off. But the market failed to reach the 50% point first, and the Road Map Chart calls 50% the 'Danger Zone' and says '80% of trades that fail do it on this line.'Please visit our site lies in studying stock market and shares that will help not only in understanding the potentiality of trade but also give an idea about potential prices. (adsbygoogle = window.adsbygoogle || []).push({});