Recent tramline swing trades in gold and the Dow 

By John C Burford

Editor of Money Week Trader and author of Tramline Trading  

Gold has been driving traders nuts recently. If you like whipsaw action, you must have loved it in mid-July to mid-August. But when US stocks began their long-awaited topping process in the summer, gold revved up its engines and made a break above the recent range.

And that was a move flagged by my tramline trading method, which gave me a $50 profit in three weeks. I will explain how I did it a little later.

Have you encountered my tramline trading method? Some years ago I set myself the task of designing a simple and purely visual chart-based trading method that could give me precise trade entry and exit points. But not only that, I needed a method that only gave me low-risk trades – trades where I could limit my initial risk to less than 3% of the account. Tight money management was imperative.

I wanted to make this method as simple to grasp as I could make it, so that even relative newcomers to trading could get off to a flying start.

So, using my tramline method, here is how I made that gold trade:

The lines on this daily chart are my three tramlines.

What is a tramline? It is a line that joins highs or lows. A tramline break is a tradable event.

I was monitoring the market into early June and noted the pattern off the March high was a probable A-B-C Elliott wave pattern (simple EW concepts such as this are part of my system). Therefore, a break of the centre tramline would confirm this A-B-C and herald a substantial move up.

Therefore, I entered an entry buy-stop at $1,280 (with protective stop at $1,270) and waited. The order was filled on 19th June as the market caught a massive bid masquerading as a short squeeze.

Over the next few days, the market edged up to my upper tramline where I was looking to take profits. When the market edged up above the upper tramline on a large negative momentum divergence, that was my signal to exit and gratefully take the $50 offered.

That was an acceptable reward/risk ratio trade of 5:1.

My Dow trade

Here is another recent trade in the Dow (one of my favourite markets) pulling in a solid high reward/risk profit:

The daily chart shows a superb rising wedge going into the July highs. The wedge is one of my top set-ups and a break of the lower wedge line is a short entry signal.

I had a resting order to short in the 16,900 area with protective stop just above 17,000. It was filled on 30th July just before the big plunge. The large negative momentum divergence going into the highs told me to expect some fireworks.

As the market approached the Fibonacci 50% retrace of the wave up from the February low, I set profit-taking buy orders near that Fibonacci level.  I find that the 50% level (also the 62% level) is one of the most common reversal points – and a great place to take profits.

My profit here was 500 points on a risk of a little over 100 points.  Again, a great reward/risk ratio trade.

You can learn my methods and favourite trade set-ups in my new book Tramline Trading, a practical guide to swing trading with tramlines, Elliott Waves and Fibonacci levels, available in paperback and ebook formats. CLICK HERE for more details.