The early price records and charts of the Phoenicians that have been found suggest they looked at just such types of ‘value’ trading when making purchases and then when selling off their inventory. Remember that they lived in a part of the world where flooding and drought were common occurrences, so if a trader took advantage of the natural measured cyclic activity, he would generally be rewarded financially; this means that when there is a glut of grains, for example, there eventually does come a time when the price and time is right to buy and enter long positions. And of course, it also means that when drought or famine came, there came a time when well-positioned Phoenician traders knew when to take their profits! Now let’s extend that idea a moment, with the phrase ‘That which is below is like that which is above’ in the back of our minds as we view another chart of corn futures:
Once price breaks out of the clearly defined trading range and heads much higher, it is obvious that a ‘normal trading situation’ is no longer at hand and windfall profits can often be had in these types of situations, if a trader is positioned correctly and also has a method to help project a meaningful target. Though the method shown above is by no means a ‘hard science’ statistical approach, it is the type of approach a trader that is using hand drawn charts and equal or regularly spaced measured moves might employ. Once price breaks above the highs marked on the prior chart, it is obvious there is unprecedented demand for corn, as shown on this chart. You don’t need to know if it is because there is a drought, or someone invented a car that operates on an ear of corn per 500 miles! The chart above tells you early on that the demand for corn has increased dramatically and if you are already long corn, your only concern is how to maximize profits, because a move of this magnitude comes infrequently.
More in part 3
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