2. 1 Basic Strategies

In summarizing the strategies and tactics you need to avoid the big wipe-out and to stand proudly in the 'winners' circle,' the following constitutes the essence of a basic strategy:

1. Participate only in those markets which are trending strongly or which are in the process of developing into a major trending formation. Identify the major ongoing trend of each market and take positions only in the direction of this dominant trend or stand aside (see Figures

2.1 and 2.2).

2. Assuming that you are trading in the direction of the trend, initiate your position either on a significant breakout (such as a gap opening on high volume) from the previous or sideways trend, or on a measured reaction from the ongoing major trend.

(a) In a major downtrend: sell on minor trend rallies into overhead resistance or against a strong down trendline, or on a

Figure 2.1 An Uptrending Market. Commencing December of 1995, SEPTEMBER COPPER broke out on the upside. An uptrending market is typically characterized by a succession of higher highs and higher lows. Traders should not be anxious to sell their long positions and revert to

short because bull markets generally go higher than most traders anticipate. The market, and your technical indicators, will "tell" you when Qthe top has been seen.

45% to 55% rally (or the third to fifth day of the rally) from the recent reaction bottom.

(b) In a major uptrend,: buy on minor trend reactions into support or against a strong up trendline, or On a 45% to 55% reaction (or the third to fifth day of the reaction) from the recent rally high. In this regard, it is imperative to note that, if you misread or choose to ignore the trend of the market, and are buying against an entrenched bear market or selling against an entrenched bull market, you are likely to spill lots of red ink, and feel pretty silly, as well.