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Trading the Jam way

  #105 (permalink)

Juno Beach
 
Trading Experience: Advanced
Platform: Ninja and TS
Broker/Data: Optimus Futures / Matt
Favorite Futures: multiple
 
JamTheTrader's Avatar
 
Posts: 135 since Sep 2009

Gann Swing Analysis

The next important topic will be on Gann Swing Analysis as I believe this is all you need to determine market structure.

Choppy Market
A choppy market is defined as a market without any clear direction. Choppy markets can present themselves after an extended bull or bear market has been in place. When identifying choppy
markets, a trader must first locate the highest high and lowest low over a number of sessions. These two swing points will give you your range. The next thing to look for is how well the market
trades within this given range. If the market puts up little fight when attempting to break through support or resistance, odds are the market is in a choppy period.

Change Your Mindset
Traders must change their mindsets in a choppy market. Many day traders in the late 90’s had grown accustomed to 25% gains intra-day. This of course changed as the market environment shifted
from boom to bust. Hence, traders should not get greedy and will have to adhere to the rule that ”small gains equals big profits”.

Gann Swing Analysis is one of my favorite techniques to help determine market direction and when the market is not in a direction. While Gann Swing Analysis is not new, I believe the way that we use it for staying out of chop is. Lets get to the basics of Gann Swing Analysis and then we will look at our interpretation of chop using this tool.

We will start by defining Gann Swing Analysis and its forms

There are 4 types of basic
  • UpSwing
  • DownSwing
  • UpTrend
  • DownTrend


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Upswing: From Down to Up.
The swing direction can only change to up if the market makes two consecutive highs.
Looking at the figure above, you can see that bar number 1's high is the first consecutive
high, and the bar number 2
is the second consecutive high. The placement of the lows is
not
important.


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Downswing: From Up to Down.
The downswing direction can change to down only if the market makes two
consecutive lower lows. Looking at the
figure to the above, you can see that
bar number 1's low
is the first consecutive low, and the bar number 2 is the
second consecutive low. The placement
of the highs is not important.


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UPTREND: Trend Change from Down to Up.
To change from a downtrend to an uptrend, the trend must have been down,
as indicted by the magenta line.
A peak is formed by an upswing (1) followed
by a down swing.
If this peak is passed on the upside, the trend changes from
down to up.


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DOWNTREND: Trend Change from Up to Down.
To change from an uptrend to a downtrend, the trend must have been up,
as indicted by the solid line. A valley is formed (1) by a downswing
followed by an upswing. If this valley is passed on the downside the
trend changes from up to down.

Defining your Trend:
Defining your trend using pivot points is one of the easiest and
most effective ways of trend determination. With this method,
you do not have a need for any indicators. In the example below,
you will notice that we have higher high pivots and higher low
pivots denoting an uptrend.

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In the example below, you will notice that we have lower high
pivots and lower low pivots denoting a downtrend.

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Using Gann swing to determine trend and possible trend change is only one
way to use them. In fact, Gann Swing analysis can be very helpful in
determining chop.

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Notice in the figure above, we have Gann swings going in and out of each
other denoting a sideways choppy market. As a trader we have two choices
here, stay out, or scalp. In my experience, scalping is a very difficult endeavor
and one that on this side of the computer, we are not well equipped to play.
I would prefer to go for the easy money and stay out of chop. Remember,
you do not have to catch every move, let the markets come to you.


Last edited by JamTheTrader; January 10th, 2012 at 04:01 PM.
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