Diary of a Professional Commodity Trader: Lessons from 21 Weeks of Real Trading_5

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Diary of a Professional Commodity Trader: Lessons from 21 Weeks of Real Trading_5 A Triangle and Running Wedge in SugarFIGURE 4.21 Weekly Chart Symmetrical Triangle inSugar.The sugar market generated the overwhelming proportionof profits for the Factor Trading Plan in 2009. Figure 4.21displays a 14-month symmetrical triangle on the weeklychart at the precise point of completion on May 1. Thispattern launched the largest price thrust in sugar in 28years. Figure 4.22 displays the daily chart of the activelytraded October 2009 contract. This chart had asimultaneous breakout on May 1 of a six-month ascendingor running wedge. Classical charting principles applied to the stock markettreat the rising wedge as a bearish pattern. However, manysubstantial price advances in forex and commodities arelaunched by an upward thrust from a rising wedge. I havelabeled this type of chart development as a running-wedgepattern.FIGURE 4.22 A Six-Month Running Wedge in OctoberSugar. An H&S Bottom in Apple ComputerThe only stock chart contained in this book, Figure 4.23shows that Apple Computer completed a magnificent H&Sbottom on the daily chart on March 23. Notice that themarket retested the ice line on March 30, but the retest didnot violate the Last Day Rule.FIGURE 4.23 A Perfect H&S Bottom in Apple Computer.A Major Continuation H&S andSymmetrical Triangle in GoldThis market is an excellent example of three patterns.Figure 4.24 displays an 18-month inverted continuationH&S pattern on the weekly chart. As a side note, theminimum target of this pattern at 1340 or so has not beenreached as of this writing. There is no rule that stipulatesany target must be met. Chart patterns fail to deliver theirimplied price moves all the time.FIGURE 4.24 Weekly H&S Bottom in Gold. There was quite a point of contention within the technicalcommunity about this pattern. A well-known Elliott Waveresearch firm, for which I have great respect, stated thatlabeling the pattern as an inverted continuation H&Spatterns was a joke. Y Edwards and Magee in the “bible” etof classical chart principles, Technical Analysis of StockTrends, stated: Occasionally prices will go through a series of fluctuations which construct a sort of inverted Head- and-Shoulders picture which in turn leads to continuation of the previous trend. … One of these patterns which develop in a rising market will take the form of a Head-and-Shoulders Bottom. Figure 4.25 shows that the right shoulder of the weeklyH&S pattern took the form of a massive six-monthsymmetrical triangle on the daily graph. Also note that thebrief pause following the early September completion of thetriangle formed a five-week H&S failure pattern. Thesetypes of small patterns are very useful in pyramiding aposition. This small pattern also allowed me to move theprotective stop from the initial Last Day Rule of the six-month triangle to the Last Day Rule of the five-weekcontinuation pattern.FIGURE 4.25 A Large Symmetrical Triangle and SmallH&S Failure on the Daily Gold Graph.FIGURE 4.26 A Bull Market in Copper Loaded withContinuation Patterns. A Series of Bullish Patterns in CopperFigure 4.26 shows a wonderful series of continuationformations during the bull market in copper from Marchthrough the end of December 2009. Notice that the LastDay Rule of each pattern was never challenged, althoughthe stair-stepping nature of the advance was difficult on thenerves. As a general rule, demand-driven bull marketscontain a lot of backing and filling, whereas bull movesdriven by severe supply shortages are much sharper. Mostbear markets are also quite sharp, retracing in half the timethe ground that was gained during the preceding bull trend.A Failed Ascending Triangle in the USD/CAD CrossrateRight-angled triangles have the strong tendency to breakout through the horizontal boundary. In fact, a breakout ofthe horizontal ice line can almost be expected. Y on et,occasion, a right-angled triangle can break out of thediagonal boundary, usually grudgingly, as shown on theweekly chart in Figure 4.27.FIGURE 4.27 Weekly Chart Ascending Triangle inUSD/CAD. The seven-month ascending triangle in the USD/CADhad a bullish bias. As shown on the daily chart in Figure4.28, the lower boundary of the ascending triangle wascalled into question in mid April. However, even at thattime, my thinking was that the lower boundary was justbeing redefined with a lower slope and that an upsidebreakout was just being delayed. Nevertheless, I went witha short sale on April 14 and was quickly stopped out abovethe April 13 Last Day Rule.FIGURE 4.28 A Tricky Breakout on the Daily USD/CADChart. The downward thrust on April 29 and 30 confirmed thefailure of the ascending triangle and called for a minim ...