Tramline Trading. John Burford
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my case, the average holding time for a successful trade is measured in a few weeks. I have had trades that turned into monsters lasting several months. But they are quite rare and they are not my main focus; I look upon these as the icing on the cake. The bulk of my profits come from a steady accumulation of decent swings lasting a few days or weeks.
The tramline method is a simple and complete system which combines my original tramline concepts, the Fibonacci levels and basic Elliott Wave Theory. It will appeal to traders of all types, from the very beginner to the more advanced. It can apply to many markets, but I personally only trade the large currency crosses, the large stock indexes, gold and Treasury Bonds. I generally avoid individual equity markets because they can offer up sudden shocks, such as a key manager departure, or an overnight profit warning. The markets I trade do not have these disadvantages.
In the book I indicate where precise trade entry levels and stop losses can be placed. A key part of my method is to use strict money management rules which allows for low-risk trades once you have the trade setup.
Who this book is for
I have written this book for the serious trader who treats his trading as a proper business. I am assuming you know the basic mechanics of trading, the various types of orders, the markets themselves, what long and short mean, and how to read the COT (Commitments of Traders) report, which is a source of much useful information concerning the sentiment and positioning of traders.
This is not a book for the day trader. There are good methods available for such activities, but they require you to be alert to your screen throughout the trading day. This book is aimed at the time-poor trader who can (or wishes to) only devote limited time in the day to the screen.
The basis of my method is chart-reading. That is, finding recognisable patterns in charts that are reliable indicators of the next market direction. I have spent years simplifying my methods to the point where I believe that almost every willing person can quickly learn them.
I am assuming you have a basic knowledge of the principles of technical analysis (including tramlines, Elliott Waves and Fibonacci retracements).
And if you are among the group of traders who is using standard technical analysis and not achieving the results you wish for, you may be over-complicating your approach – something I studiously avoid. If this sounds like you then I suggest you go back to basics and start with my method, which uses only the simplest of elements. You can then build from there.
The structure of the book
This is a practical book which you can use to apply the principles and rules of my method. I will not devote much space to an exposition of the theories underlying my method. Since I believe a chart is worth at least a thousand words, much of the book contains charts which illustrate the various aspects of my method in real-life situations. And I include many tips and short-cuts that I have found useful in my own trading.
The vast majority of the charts are taken in real time as I wrote from November 2013 to March 2014, so I hope I cannot be accused of cherry-picking my examples. I believe this gives them a powerful immediacy. It also highlights the wealth of great trade setups that the markets are constantly offering the swing trader over just a few months. If you are following a handful of markets, you should be able to spot many possible setups in a week.
The book is divided into three parts:
In Part I, I develop the tramline trading method in the first chapter with sections on support and resistance and how to find them on any chart. And there is a section on trendlines, which is the basis of my method. Then I describe my favourite chart patterns that help me fix my trades.
In the second chapter, I explain how I use my tramline techniques to find high-probability/low-risk trades and how to manage the trades with correct stop-loss placement.
In Part II, I explain how you can apply my method with practical tips and ideas incorporating basic elements from Fibonacci and Elliott Wave Theory. I appreciate many traders find Elliott Wave Theory difficult to understand – identification of the waves and sub-waves can seem arbitrary. That is why I only use the very basic concepts of EW theory in my work. I believe that just a mastery of these basics will pay handsome dividends.
This part also contains practical ideas for overcoming problems we typically encounter in real-life trading. One of the most important chapters in the book is Chapter Four, where I outline my five best trading setups.
Finally, in Part III, I relate my day-by-day diary of two trading campaigns where I outline my analysis in real time and give the results; win, lose or draw. I hope this section will be particularly useful in showing how I set up real trades and how I manage them in the heat of the battle. I find that for most traders, trade management is the most difficult discipline to master. It is said that getting into a trade is easy, it is the getting out that is more difficult – that is where my tramline method pays dividends.
To conclude the book I offer my Eleven Commandments which, if observed, should keep you out of trouble and put you on the correct path to trading success.
Introduction
Two roads diverged in a wood, and I — I took the one less travelled by,
And that has made all the difference.
Robert Frost
There are certain universal chart patterns that markets continue to trace out that have stood the test of time and that can be instantly recognised by a skilled trader. And when you learn how to spot these patterns and understand what they mean, then you have the basis of a solid trading method.
In this book I will show you the patterns which I have found extremely reliable that have helped me develop a complete trading system using only the most basic of elements. I call it the tramline trading method. It is probably one of the easiest methods to master.
I first became a student of charting in the early 1970s, well before the advent of personal computers and electronic trading. To get a market quote I needed to ring my futures broker, there was no way to keep an hourly bar chart updated in real time and I kept my paper charts updated using a pencil. Yes, it was primitive.
But what fascinated me was the fact that by examining patterns on the daily chart, I believed it possible for a reasonably skilled analyst to make a forecast of future price action. And with little or no knowledge of the fundamental supply and demand factors of the market.
The bible of charting then was Edwards and Magee (Technical Analysis of Stock Trends, by Robert D. Edwards and John Magee (CRC Press).) – a doorstop of a book that covered most of the classic patterns. There is a large section in the book devoted to reversal patterns and that was the part that grabbed my attention the most. In fact, because of my interest in reversal patterns, the tramline trading method I developed enables me to focus on trend changes and turning points, although not exclusively.
Early on my imagination was gripped with the possibility that if I could identify a pattern correctly, I could forecast the next likely move and I might also be able to set a price target. That was an exciting prospect. It was exciting because it would enable me to get on board a major trend early in its development before the majority had cottoned on.
But a glance at Edwards and Magee told me that charting could be a very complex area of study. The book lists a vast array of basic patterns with their many variations.
For some years I then retreated from the markets to pursue other business interests. But the siren call of the market was always there in the background. And when I felt I had achieved enough with those other businesses, I set to work on devising a simple method of analysing price charts.
The simple concept of support and resistance lines is something most students of technical analysis learn early on; I believed there could be a method that embodied this concept in a new way. I decided to base a trading method on these support and resistance