My Tramline Trading Method in Action
The idea that on a price chart, we often find several major highs and/or lows that line up precisely on a straight line, usually sloping. There seems to be no logical reason why that should be so, But it occurs often enough to make it a standard feature of many charts.
Not only that, but we find in a wave progressing higher, the lows connect in one line and the highs in another – and the two lines are parallel. Again, there seems to be reason why this should be so.
With the lines drawn, the price traces out its waves inside this trading channel and the lines represent lines of support (lower line) and of resistance (upper line). Here is a great example in copper
The upper tramline has six accurate touch points and the lower one has five. At no time did the price swerve outside the trading channel for many months – until the break down. That was when the support of the lower tramline transformed into a line of resistance.
As soon as the price broke down, it was drawn swiftly down and met support at T3, which is a line drawn equidistant from the lower line. That was a good price target set in advance.
But all the time the market traded inside the channel, every time it approached the lower tramline, the market could be bought. And every time it approached the upper tramline, it could be sold.
Of course, the tramlines needed some development before they became apparent, so that the above trading strategy could only be used with confidence near the end. But the more secure trade was available as the lower tramline was broken and that signified a new downtrend was in force.
Tramline Rule 1 In an advancing wave, buy near the lower tramline and sell near the upper tramline. In a declining wave, the same rule applies.
The market was in decline and then started a relief rally that traced out the trading channel between the yellow tramlines. The high of the rally was put in when it met the crossing of the upper tramline with the Fib 50% retrace. That was a double dose of resistance and forced the market back down again.
Note that as the market was pushing up to the high, the tramlines were only tentative since there were few touch points then.
So in advance you could confidently set a limit sell order at that crossing with a close protective stop. That was a high probability trade.