the trader's classroom collection

VIII. How Historical Extremes Act Like Price Boundaries
Regardless of the timeframe, highs and lows represent psychological hurdles. Of course, the larger the timeframe, the
more significant the hurdle – and the more likely it is that a reaction will come on a test of a historical extreme.
Now, note on the monthly chart of Feeder Cattle (Figure 8-3) that a ceiling of 90.00-95.00 has been in effect since the
mid-1970s. It was no magical feat to figure out that a move beyond this area was unsustainable. Similarly, Live Cattle
(Figure 8-4) has traditionally met resistance between 80.00-85.00. Even back in October, it wasn’t a stretch to expect
declines in these markets, because each prior break of these ranges resolved that way.
Two opportunities I didn’t mention at that seminar were in Oats and Orange Juice (Figures 8-5 and 8-6). Basis the
monthly chart, Oats showed solid support at 120.00-100.00. Every time prices have traded this low, a rally has developed
soon after. And O.J. has maintained support at 75.00-65.00 since the 1980s. Basis the monthly chart, the recent low in
Orange Juice was 60.05. Did this guarantee that prices were ready to rally? If only it were that simple.
What this chart did tell us was that the next move worth trading was likely to be a move up. In other words, a five-wave
advance on the daily or weekly chart following such a test should carry a bit more importance in your analysis than it
normally would.
[January 2004]
Figure 8-3
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