Revisiting a Q&A with Dawn Bolton-Smith

This article was originally published by the Educated Analyst.

In this edition of Q&A we talk to trader and market legend Dawn Bolton-Smith.  With a career spanning over 50 years Dawn has successfully navigated her clients through stellar bull runs, major crashes and everything in between…

Q.  How did you get into trading/investing?

A.  As a complete novice in 1960 and having accumulated funds to invest, the family Doctor sent me along to his broker who said the market was high (but I didn’t know what it meant); he went ahead and bought me all the good leaders.  The Holt Credit Squeeze in 1961, also known as the “Holt Jolt”, brought the shares tumbling down, and I knew I had to find out what it was all about.  I enrolled at the Stocks & Shares Class at the Mosman Evening College which set me on a career path for the next fifty years.

The Mosman Group under the late Ian Notley were the real pioneers of Technical Analysis in Australia.  To draw up the price charts, we went to the Mitchell Library and copied the prices out of the Newspaper and then exchanged them by tracing with lunch wraps and a tracing light which I still use to this day.

Q.  How long have you been trading the markets?

A.  All told now for five decades – stock market, commodities and foreign exchange.

Q.  Were there any authors, market teachers that influenced your style of trading as you started?

A.   The main textbook at that time was ‘TECHNICAL ANALYSIS OF STOCK TRENDS’ by Edwards & Magee.

Ian Notley was one chapter ahead of the class and for some years he dictated the text, and I think I must have written most of this classic book by hand.  It continues to be the most well thumbed book on my shelf.

Progress was slow, but thorough.  I later acquired a copy of ‘BEAR MARKETS: How to survive and make money in them’ by Dr. Harry D. Schultz, where the lessons learnt from this book were applied for my later prediction of the 1974 Share Crash.

Q.  Which exchanges do you prefer to trade, and if so, why?

A.  The Sydney Futures Exchange is adequate for local markets.  For offshore, the CME and NSYE for their liquidity.

Q.  What time frames do you aim for your trades (short term, mid-term, long term, combination of all 3)?

A.  The time frames using Gann’s Seasonal times provide the best pivot points.

Q.  Do you utilize any fundamental analysis in your trading, or do you use Technical Analysis exclusively?

A.  It is hard to divorce yourself from hearing the fundamentals, but I believe if you can do it – best to board up the windows and use the technicals.

Q.  What is the most important lesson you’ve learnt as a trader?

A.  Not to overtrade and only take the number of contracts you are comfortable with.

Q.  You were the first Technical Analyst to be employed in the Australian Stock Market.
Was there a lot of resistance to your methods by your peers?

A.  I was fortunate to be starting out with the right charts and the advent of the oil and mining booms. I acquired a following with the quality of the analysis I was able to produce.  I was the Chartist in the Bulletin for many years and made some good calls.  I was able to pinpoint the Bass Strait Oil discoveries at the start of the run because of my charts.  Likewise with the Nickel boom and WMC. From the mid 1960’s the mining and oil market exploded and I had acquired five full time assistants, and we had every mining and oil stock on the board charted.  Sadly, following Poseidon, the boom came to an abrupt end as booms always do.  The point I would make here is that the investors decided they couldn’t sell because of the tax, but later there were no profits to tax.  A lot of defunct share scrip is probably still in bottom drawers.

Q.  You successfully predicted the crash of 1974 to within 4 points of the market low.
Would you class this as a major turning point into how your peers viewed Technical Analysis? Did this cause the company to employ more analysts using TA?

A.   I do believe there were more analysts coming into the industry.  The highlight for me was the address I was asked to deliver by the National Times in late 1974 to a group of Economists, Brokers and Fund Managers on HOW I PICKED THE THIRTIES STYLE CRASH! I had done considerable technical work on the long term trend of the Stock Market with a magnificent chart, along with some of the key economic indicators.  It was a case of putting it all together and indeed knowing where the major uptrend line of the All Ordinary Index would bring in support, which it did.   The chart had become rather tattered and Russell Lander said to pass the hat around to buy me some more chart paper!  The chart showed how simple and effective some of the basic principles of TA helped with the predictions.  The major top formations made by the individual stocks also greatly assisted in determining just how far the market could fall.  The extent was greater than the 1929 crash and devastating for non believers.  The inevitable retrenchments occurred in Stock Broker’s offices as the boom subsided and turnovers dried up.  A lot of good people left the industry and said they would never return.

Q.  Can you give details of one of your best trades (setup, entry, exit etc.)?

A.  My best trades came as a result of taking positions early in the trend and locking in the profits as the trend had run its course. There were so many during the halcyon days of the mining and oil markets.  I did have a small suitcase full of oil scrip which in those days was issued in 100 lots but acquired at very low prices.  By the time of the 1968 top – I had emptied the suitcase (a great lesson for buying low and selling high).  In more recent times, I sold Gold Futures at $840 when everyone was looking for $1000, futures opened down $220 the next day.  The optimists were faced with huge margin calls and there was no real recovery as the bear market got underway.    Capturing the bottom of the $AUD after Mr. Keating’s  “Banana Republic” statement was achieved by using Gann Square and Point and Figure chart.  There were many sore heads in the Forex Dealing rooms on that day!  My worst experience was holding too many gold contracts.  Sydney had a big premium on the Friday, but it was wiped out in Hong Kong on the Saturday morning.  The only consolation was that Dr. Harry Schulz had the same position.  It took me a month to get over it.  Lesson learned.

Q.  If you had to pick 3 things no trader should be without, what would they be and why?

A.  An hourly chart on the market I was trading (in the case of ASX 200, a half hourly works best) a hand drawn point & figure chart and access to a good piece of online software (Market Analyst 6 of course!).

Q.  You use Point & Figure charts extensively when analyzing the markets.  Can you explain some of the benefits you find this charting style has over a standard bar or candlestick chart?

A.  My preference for P&F charts has grown considerably over the years and more so since I have been able to draw really long term charts in major indices, commodities and stocks with the aid of an excellent piece of software – Bull’s Eye Broker and using CSI data.  I just print out the chart and copy it onto a piece of chart paper which is then easily updated by hand.  The use of Gann Square overlays produces some amazing geometry and with the use of angles and arcs you can produce great analysis.  P&F charts are considered the oldest form of charting, and simply reflect the supply and demand of any trend where the use O’s and X’s can provide clear answers where the other charts merely stutter. David Fuller of Fullermoney, when asked for his preference – candle or P&F – his answer, “P&F” which he uses extensively with a huge data base.

Some years ago, I did a presentation in Brisbane on P&F with a good set of explanatory notes.  I would be able to email this to any reader of this Newsletter to further their interest.  You learn by doing.  There is a wonderful textbook: ‘The Definitive Guide To Point and Figure’ by Jeremy du Plessis.  Published by Harriman House, you would do well to put it in your library.

As a further point of interest for using P&F charts – they are wonderful for mining stocks.  They give great trend lines and patterns and are simple to maintain.  Coming out of bases provide the least risk and most reward.

Q.  You also utilize W.D. Gann’s theories into your analysis.  Do you find his material, most of which was written in the early 20th century, is still applicable to today’s markets?

A.  I believe Gann’s theories in some ways are more applicable to today’s market.
Basically, all markets are the mathematics of emotion, fear and greed always present.
I have a much treasured GANN SQUARE – W.D. Gann Price and Trend Calculator, 1952 which I obtained from Bill McLaren at one of his seminars some years ago.  Mr. Gann was reputed to have charged $5000 US in 1954 in his personal seminars.  If you learn to understand the real meaning of the Triangle, the Square and the Circle you will then understand markets.

Q.  We’ve seen a lot of volatility in the markets since the GFC, and for the unprepared trader it can cause many problems. Do you have any tips on how to overcome the issues volatility can bring?

A.  There has always been volatility in markets not necessarily due to a GFC.  It is very important to have up-to-date charts always, and be prepared for the unexpected. Pre-market preparation is necessary.  Most traders tend to rely on too many indicators – they have their place but I believe the emphasis should be on the price chart.  Moving averages are great, especially 3/5 period crossovers after a long run up (or down).  Getting in too late in a trend brings risk.  I recommend traders and investors use Welles Wilder’s Directional Movement System as a back up to all others.  I believe if you live by the rules of this system you will never be “wiped out”.

A great example was into the 1987 highs – you had three week’s warning to get out of the market.  The Parabolic Stop can keep you trading with the trend.  It works on all time frames. The indicators most used today – RSI, Stochastic, DM, etc were actually borne out of the 1970’s commodity boom, and were introduced to Australia by Mr. Wilder at the Sydney Opera House in 1980.  I always felt I was indeed privileged to have been tutored by him.  Computers were just coming in then but for some years I calculated the indicators by hand calculator – it was a way of really getting to understand how they work in the markets.

You learn by doing and this applies to keeping some key charts by hand and not leaving everything to the computer.  What I have observed over the last two years is the importance of the 30 period moving average.   Keep this one on your charts.

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