This daily chart of the November (2010) Crude oil, offers a very good example the importance of understanding the influence the median line can have on a market. Dr. Alan Andrew’s Median Line Trading Principle #1 states – ”When a median line is drawn from the most recent swings, the price should return to the median line approximately 80% of the time.” His Median Line Trading Principle #2 says “When the price returns to the median line there often will be a pivot made on the median line.”
I was using Median Line Trading Principle #1 when I posted the recommendation, in the Traders Market Views Swing Trading Report, to buy the November Crude oil at 77.44. Prior to the entry, Crude oil had tested the lower parallel line three days in a row and then used it as a springboard for the new upward price swing.
Median Line Trading Principle #2, in combination with “action-reaction” reversal dates, came into play when I projected the target objective at 83.45. I simply projected forward along the ascending median line to where the next reversal date (October 7th) would intersect with the median line.
Crude oil reached the ascending median line target objective (83.45) on October 6th, one day before the projected reversal date. Crude followed with a higher high on October 7, reaching 84.43, before major selling entered the market and caused Crude oil to plummet over $4.00 in the next few hours.
Understanding the Median Line Trading Principles and using the market behavior provided the information needed to enter the long position,can help a trader position themselves before the major price run and exit at the peak to avoid the major price decline.
For more information about using “action-reaction” and market behavior in your trading decisions go to www.tradersnetwork.com and sign up for a free 30-day trial subscription to the Traders Market Views (TMV) Swing Trading report. The TMV Swing Trading Report is packed with educational information and high probability swing trading opportunities.
- Major reversal at median line – Novermber Crude oil