Posted on August 6th, 2008 at 03:27 PM

I thought today would be a good day to take another look at the longer term chart of the S&P 500 Index. Keeping proper perspective can be somewhat challenging when you are trading and all of your energy is concentrated on one particular time frame.

As traders we need to have the mental flexibility to quickly change our perspective and look at things differently when the current situation doesn't have anything to offer. Many times by changing the way we observe the market, we can quickly begin to focus on other types of opportunities that may have been overshadowed by our current train of thought.

While I spend a fair amount of time daytrading, I still review my weekly and monthly charts to maintain my big picture viewpoint. Below is an example of that long term analysis. This is a monthly chart of the S&P 500 Index. I use a lot of Gann in my trading as I find it adds an incredible amount of precision to my trading when properly applied. I like to start off by using the Gann Angles to help me find sloped areas of support and resistance (aka. trendlines). The way these are used is by looking for rotation.  These Gann Angles are simply support and resistance lines, but they were in place well before the price action ever got there. Just like pilots use charts to navigate the skies, traders use Gann to provide a similar situational awareness. A big part of successful trading is anticipation; if you can anticipate what could happen next, it frees you up to react quickly and decisively when the expectation doesn't develop.

The basic law of support and resistance holds true with Gann Angles. When the price action breaks through a level, I expect the next angle to be tested. As each level is broken to the upside, it subsequently changes it role and becomes a support level. As the price action moves above one angle, it natural tendancy is to rotate to the next angle. By anticipating this behavior, you can begin to fold in other strategy based trading skills (think about the four core strategies, money management and so forth) to give yourself a strategic edge trading the markets.

Trade Smart.

~Duane Gott