Capturing the Most Profits at the End of a Major Cycle

Those of you who have attended Lambert-Gann Educators, Inc seminars in the past should now be experiencing the most rewarding part of commodity trading – that of having built a very profitable position in a market that is beginning to accelerate. It is very timely that we now talk about how to capture the most profits from this campaign in July Soybeans.

You should now be concentrating on how to capture profits in the acceleration that normally comes at the end of these major cycles. Most of the buying of new contracts, according to the rules learned at the seminar, should have already taken place. There have been at least four opportunities to add to the position since the last time a two-day swing bottom was broken just prior to the 556 low on March 7, 2003 (See chart below).

I received the following letter from Charlie in Wisconsin on April 17, 2003, which clearly points out the necessity of knowing how to retain a large percentage of these profits. One of the worst sins in trading is to accrue large profits and then lose a substantial amount of them due to lack of trading experience or blind adherence to a forecast.

 

To capture the most profits from this move, we must focus on trading what is actually happening and not concern ourselves with our forecasted top date. Even though the forecast has been extremely accurate, we must now put it aside and look at the market through the eyes of a trader.

We have followed the position up with stops according to the two-day swing rules and we must continue moving the stops. Let’s look at some previous moves to help identify how major runs typically end.

30 year cycle – 1973 – ended with 11 trading days up without a reaction.

20 year cycle – 1983 – ended with seven trading days up without a reaction.

15 year cycle – 1988 – ended with 10 trading days up without a reaction.

10 year cycle – 1993 – ended with 22 trading days up with only two, one-day reactions.

6 year cycle – 1997 – ended with 16 trading days up with only two, one-day reactions.

As we approach our forecasted top date, the information above clearly shows that we should expect only one-day reactions. Therefore prudent stop placement within the last two weeks of the run should be below the one-day swing lows.

Mr. Gann actually stated that we should keep hourly charts at the end of the great cycles to help determine the first change of trend. I would suggest that this would be an opportune time to be looking at an hourly chart.

If we are still accelerating into the last week before the forecasted top, I would be moving stops up under the hourly swing lows just to stay closer to the market. An alternative liquidation method is to identify prices of major resistance and scale out of the positions in periods of strength into these price areas. The advantages of scaling out of the position are as follows:

A. We have captured good profits on the positions we have exited.

B. We still have some of the position on in case the market moves higher.

C. We have reduced the risk inherent in a large position by reducing size.

D. Mentally we have rewarded ourselves by doing the right thing.

An extremely good way of identifying major resistance is with the Natural Squares Calculator. Calculate resistance points by using square root mathematics from the Calculator as follows.

Last Major Bottom is 425. Square Root = 20.62

Last Intermediate Low is 536. Square Root = 23.15 (Approx 2.5 squares and 90 degrees away on the Calculator)

I would then expect that this cyclical high would appear close to, or on, the same angle or 90 degrees away from one of these prices. The Natural Squares Calculator makes these numbers available at a glance. We can also use square root mathematics to calculate those numbers (above current price of 620) as follows.

25.15 Squared = 633

25.65 Squared = 658

26.15 Squared = 684

26.65 Squared = 710

We should try not to focus on the absolute top price but just make sure that we have traded correctly and maximized the profit in our position to the fullest. Just remember that the profits some of the seminar students have accrued are significant enough to make major lifestyle differences (see letter above as an example). The emotions involved in that kind of decision making make it prudent to have a liquidation plan written ahead of time so all we have to do is execute the plan.