A runaway move denotes an interval when a market displays tremendous momentum, with prices traversing great distances very rapidly.  Runaway moves often take place during the first and last stages of bull and bear markets, although they can occur in the middle as well.  Typically, they begin after what Gann referred to as a “breakaway point.”  Quoting Gann, “After accumulation or distribution at (a) bottom or top has been completed, there is a breakaway point.  When you buy or sell stock at this point, you make money very quickly.  It is a safe point to buy or sell for quick profit, as the run is on.”

Although characteristics vary from one market to the next, we can provide a broad “textbook” definition for a runaway, which most markets tend to follow.  In general, whether up or down, the move usually lasts between 2 and 3 months.  Minor corrections along the way are normally shallow and seldom linger more than 5 trading days before momentum aggressively resumes in favor of the trend.  Because these minor corrections tend to be so small, they provide some powerful dynamics relating to profitability:
· They allow for entering the market with very little risk, since the minor corrections are often very uniform.
· Stop-loss orders can be trailed behind the market as it moves in your favor, thereby enabling you to lock in a lion's share of profits once the market reverses.

Systematic pyramiding (adding to profitable positions) during these moves can significantly enhance prospective returns with only a marginal increase in risk.

Pyramiding in Runaway Moves

According to Gann, “The big money in pyramiding is made in the run between accumulation and distribution.  Pyramids should be started after double or triple bottoms. 

“Once the market gets away from the accumulation period and the trend is well defined, reactions are very small.  While accumulation or distribution is taking place, you should trade for small scalping profits and never attempt to pyramid.  Wait until an accumulation or distribution zone is cleared before buying or selling a second lot.

“Select markets that exhibit a strong uptrend to pyramid on the buy side and the ones that show a definite downtrend to sell short.  Be careful about pyramiding at the wrong time. “Wait until the commodity is very active and has crossed resistance levels before buying more, and until it has broken out of the zone of distribution before selling more.

“If the market continues to move in your favor and your stop-loss order is not triggered, you can continue to buy or sell on the way up or down, but don’t forget that the more the market moves in your favor, the nearer the end of the move, and buying must not be increased near the top after a long move, nor selling increased near the bottom after a long decline.  Never start to pyramid after a long advance or decline.  The chances are against you.  Begin pyramiding when the trend first turns up or down after long moves.”

Gann described 2 proven methods of pyramiding:

1. Buy or sell more as soon as the market breaks into new territory or makes a new high or low, or
2. Determine the reaction levels and how many points a stock (or commodity) has corrected from temporary tops or rallied from temporary bottoms, then buy or sell after reactions of similar size.

A pyramid should always be followed up with a stop-loss order, no matter what method you use, because your profits must be protected.

As mentioned above, the great advantage of runaway moves is the ability to buy or sell with a well-defined and small risk.  As a market moves in your favor, you can easily trail stop-loss orders below or above the greatest correction on the way up or down, since corrections will tend to be uniform.  The first time a market declines or advances a greater number of points than in previous corrections (or exceeds corrective time periods from previous runaways), it indicates an “overbalancing” of buying or selling pressure, and while final highs or lows may not yet be in place, the runaway portion of the cycle is complete.  Once an overbalancing takes place, you must exit long positions immediately.  There is usually distribution at the high, but if a market forges a spike top, prompt defensive action can offer your sole opportunity to get out with your profits intact.

The more profit you have, the further away from the market you can place your protective stop so that a natural reaction will not disturb your pyramid, while in the early stage of the pyramid your stop-loss order would have to be closer in order to safeguard your original capital.

Soybean Runaways in 2003-04

Between July 31, 2003 and March 22, 2004, the cash price of soybeans rocketed a climactic 95% in 7 months and 20 days.  On a percentage basis, this stands as the 6th-greatest leg up in the beans in all bull markets since 1940.  Of legs that culminated bull markets, it ranks 3rd behind the final legs up in 1973 and 1988.

In futures, the stunning 2003-04 advance in soybeans actually consisted of 2 distinct runaway gains measuring a respective 58% and 46%, each lasting at least 3 months, interrupted by a near-10% decline.  

Looking at soybeans since 1936, we find that single or multiple runaways occurred 39 times, or almost once very 2 years.  Bull markets starting in 1937, 1942, 1954, 1966, 1972 and 2003 all enjoyed multiple runaway legs higher.

In our research, we found that these runaway legs up remained in effect as long as the market did not fall for more than 6 trading days off any new high, or more than 8.0% in price.  In the twin runaway legs in 2003-04, the minor corrections persisted for only 3, 2, 5 and 4 days.  Their respective percentage declines amounted to just 4%, 5%, 7% and 7%. 

With soybeans already well over a year into a tenacious bear market as of their September 2006 low, and given the documented propensity for cash beans to bottom in October, such information could soon again prove helpful.