We have promised to make this book as practical as possible, and in doing this we have personally found that our best informative data received is that which is conceived on the battlefield of trading itself. In view of this, we have included a personal current question -- along with our answer -- to a very real situation.
Charts 1 and 2 of December Wheat are included as examples of the use of our system to determine an answer “in the now”, so to speak.
Obviously, the answer as to when to get aboard a trade is one, which must be answered per the TIME and per the position of our subject within the parameters in which it is currently working.
However, we thought that it might be well to reveal the questions, which were discussed in the real vernacular, and to see if it does not give a slant of realism both in the question and the answer discussed here.
The crux of the reason for a question as to whether it could be TIME to consider wheat as a buy comes from two reasons: (1) The person asking the question has a good reason to plan inasmuch as he is raising wheat and would like to sell from the filed, thus doing his storage on paper by buying the product back. (2) The second reason for the question was educational -- to find the best odds to have a buy at a reasonably good hedge position.
Setting: it is not surprising that since this is in the harvest TIME frame for wheat that it would bring us to a TIME frame with the near past reflecting a down trend. We, therefore, find ourselves “picking a bottom” if we do indeed want to buy back our sold product in a near-hedge position.
We would obviously like to buy or sell WITH THE TREND. If, however, TIME indicates that we need to be hedged at this general TIME frame, then we need to observe all of the factors, which we can find with the status as it currently shows. Our decision to “hold” for at least this day (and to search for reasons tomorrow) is found in these points: (1) Downtrend makes the move down an easier move than the retracement up move, so we must be sure that we are at least on a good reasoning for an upward retracement before committing our margin dollars. (2) At early morning, when the decision was being discussed, PRICE was at the points relayed on the charts. Note that we had broken the square on the 90 degree square and we were resting below this line, making the possibility very strong that PRICE was likely seeking at least the next support point -- the 45 degree line below. (3) The overbalance point (the way we use it) was determined to be the point at which a greater up move was encountered than had been experienced thus far in the current down move wave which made the down trend. For clarification, the wave that we need to exceed in order to consider the trend to be constructively trending to the upside is that wave which was encountered in the up move from the February/March TIME frame. PRICE in February low was 355; in March the high of the wave was 378. Thus the count for this wave is the difference of 23 cents. Now, quick arithmetic tells us that 23 cents added to a low is the point that we have to beat (using this definition for overbalance). We then have reason to assume that PRICE has overbalanced to the upside, at least temporarily. Now note that 23 cents added to the low of our current wave produces an overbalance point to the exact tick of our move so far in this current wave. This was the high of five days ago. Still with us?
Overbalance in and of itself does not mean that PRICE will not go back up and try (and indeed break) this point for higher ground. It does simply say to us that we have equaled, not surpassed, the balance point at this point in TIME, and that we must be especially cautious of long positions when we are “behind the lines”.
Now to the comments on the chart #1: We say we are a “hesitant long” this morning, for the reasons above plus we have some indicator “problems”. Remember these conditions change daily, but here is what we observe in these regards: the RSI was starting to turn downward as is shown on the chart. The ASI has been retracing and seems to be in the initial stages of a recovery, but is still in a very cautious area. This simply means that it is a setup for an easier move with the trend, which is yet downward by definition, it would seem. Thus we are recommending seeking a better footing for our hedge in the long position. We further are saying that it would appear that we would at least be able to make a decision on the 45 support below, as of today. We also want to look at any other aspects at that time, or we may delay to another improved point for purchase.
Chart #2 is strictly a confirmation chart for helping us make our decision. Gann said for us to KNOW all of the data before the trade. In this regard, we have placed the same chart on a 180-degree square to get a bigger picture. This will sometimes reveal a strength, which we did not see in the smaller chart. Not in this case, it would seem, for you can see that PRICE did a small “free-fall” when it proceeded below the 45-degree support on the 180-degree square. Granted, we know that it stopped exactly on the 45 degree line of the smaller (90 degree) square, but with the non-trend factors, plus the fact that this is a Friday when we are a bit hesitant to go into the weekend with an initial position, we elected to see the “whites of the PRICE eyes” on Monday.
To follow further during the day after the decision, we submit the later charts showing positions at decision-time. Note that indeed the PRICE did go on down, as prior referenced, to the exact 45 degree support, and the indicators continued to retreat. We will look at all of the above on Monday, as we consider that the jury is still out until at least that time. If this seems overcautious, let us state that we really do not like taking a position against the prevailing trend - - even on a hedge. Remember, too, that a hedge position is the subject of this analysis, and thus our justification for considering a position when trend is not in our immediate favor.
Take one more look at the next day’s chart. The jury is in. We did not act precariously with the caution against the trend! Note that PRICE literally dropped the limit after finding no support on the 45; tonight PRICE has closed nearly limit down and nearly on the lows. No question about it! We are told -- we must listen! Although this study is somewhat negative, it is presented as one, which is VERY common. We do trade our desires! Ouch!