The Dow hits my target

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Before I talk about the Dow, I want to follow up on my coverage of Apple shares, since this is a classic example of my tramline methods.

Recall on 9 November, Apple was falling precipitously from its $700 high and had broken a major tramline:

(Click on the chart for a larger version)

Because I had a very strong tramline below it – which was drawn parallel to the top tramline connecting the two major peaks – I could set a major target on that lowest line in the $500 area. According to my tramline rules, this is the spot to take profits on shorts and then reverse positions and go long.

Why go long? Because the major trend is still up – and it is usually best to trade with the major trend (unless you spot a great short!).

And this was the picture yesterday:

(Click on the chart for a larger version)

The market duly collapsed to my tramline on Friday to the $505 low, and on Monday, it bounced off it like a scalded cat. What a perfect hit – and then the bonus of a 13% rally in two days!

That is the power of my tramline methods in a nutshell.

And where is my next target? At the underside of the centre tramline, of course.

How many traders took advantage of this opportunity to make money on the downside, and establish a great long position?

I would say very few, despite Apple being one of the most watched and traded shares on Nasdaq. 

Now, why is this?

The 'woulda, coulda, shoulda' syndrome

Over the years, I have observed the 'woulda, coulda, shoulda' syndrome in traders. You know how this works:

"I woulda done it if the dog hadn’t chewed my computer cable." 

"I coulda done it if I wasn’t tied up taking the kids to school."

"Darn it, I shoulda done it – because it was a fabulous trade, and I missed it. But I’ll definitely do it next time." 

Of course, the next time is always a distant dream.

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Traders who have this infirmity will always miss the boat – and probably are not cut out for trading anyway.

Serious trading requires utmost concentration and a decisiveness to act when your method so indicates.  Sometimes, waiting a day or even an hour – depending on your time frame – means missing the boat.

If you will be away from your screen for long periods, then you need to set resting orders which are triggered if the market reaches your price. The Apple example is a case in point.

But if you miss a trade, you miss a trade. Move on to search out the next one – there will always be a next one, rest assured. 

The Dow bounces off my target

In Friday’s post, the Dow had reached one of my major tramline targets, where short-term traders would have been taking at least partial profits.

And on Monday the market bounced off this tramline and staged a sharp rally out of the highly oversold condition, as I posited.

Bear-market rallies in the Dow have lately been very sharp with deep upward retracements. We may well get another one here. That’s something to keep in mind.

Here is the position this morning:

(Click on the chart for a larger version)

In my Friday post, I had a first target at the Fibonacci 38% level. Later that day, the market came within a whisker of it… nice!

This week, the market has rallied right back to the underside of my tramline. If it turns back here, I will have my next target in my sights at the 50% level around the 4 June low level at 12,000.

But here’s another possibility:

(Click on the chart for a larger version)

So far, the rally does not have an A-B-C look, and the ideal scenario is for one before heading back down (preferably with a negative momentum divergence). I have drawn in this possible scenario with the green bars (not necessarily to scale).

Many are waiting for the 'Santa rally' into December, but with sentiment remaining bullish among the large specs, the odds for this appear unlikely unless we do see that rally back to the 13,000 area.

• If you’re a new reader, or need a reminder about some of the methods I refer to in my trades, then do have a look at my introductory videos:

• The essentials of tramline trading
• Advanced tramline trading
• An introduction to Elliott wave theory
• Advanced trading with Elliott waves
• Trading with Fibonacci levels
• Trading with 'momentum'
• Putting it all together

• Don't miss my next trading insight. To receive all my spread betting blog posts by email, as soon as I've written them, just sign up here . If you have any queries regarding MoneyWeek Trader, please contact us here.

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Published in Spread betting blog More articles by John C Burford