WD Gann said, "Everything in existence is based on exact proportion and perfect relation." Markets are made up of human beings, and human beings are part of Nature, and as such governed by the laws of Nature. But since we are in the middle of it, so to speak, rather than looking from outside, it can be difficult to gain a detached perspective. So we look for patterns in charts, and for harmony between those patterns, to give us an indication of what the market will do next. We can never be 100% certain, but with a good plan and sound money management we can make a lot of money over a course of a large number of trades.
I have had a few questions from readers about the current situation in Santos (STO), and in particular a recent ABC short trade that was proved very wrong. Let’s check the set up first.
Chart 1 – Recent ABC Short Trade
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At first glance this looks like a good trade. There was a sell-off on increasing volume, with gaps, from A to B, and then a rally on low volume to Point C, which couldn’t close the higher of the 2 gaps in the run down. As you can see in Chart 2, the trade was filled on 4 March, but on 5 March the market rallied, clipping the high of Point C by 1 cent, and thus stopping you out of the trade. This was about the best thing that ever happened to you as the market gapped up 30 cents above your stop the next morning!
Chart 2 – What Happened Next
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What went wrong? How could you have known not to take this trade? Leaving aside the strength in Oil futures out of the 5 February low, which you would keep in the back of your mind as I discussed in the last article in Issue 348, what was the chart of STO telling you? Here we must step back and look at a larger time frame, in this case the weekly chart. As you can see from Chart 3 below, the recent lows in February formed a double bottom with the previous low in July 2009. But this level was the mid-point or 50% level of the range between the 2003 low – a major low – and the all-time high in 2008. Furthermore there was an old top at this level in February 2006 (making the recent low an anniversary date.)
Chart 3 – Message on the Weekly Chart 
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Spend some time with this chart and ask yourself, if you saw this picture, would you be looking to go short this market? Or would you be getting excited about the next long trading opportunity? To add some time analysis to the equation, the most recent low on 26 February was 91 days from the low of 27 November and 179 days from the top of 31 August. If you are working with Time by Degrees, you have a double bottom (you could even call it a triple bottom, with 2 lows in February) 90° and 180° from previous significant turns.
Chart 4 – Time Harmony
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Now go back to Chart 1 and you can see that this marvelous bottom, with all this harmony surrounding it to be a turning point in the market, was Point B of the ABC trade! With this in view, the ‘entry day’ mentioned in Chart 2 actually became the first higher swing bottom and an excellent place to go long.
Knowledge is Power!
Tim Walker
Optionetics.com.au
