Kane Trading - Education for Serious Traders

					December 3, 2003 Commentary- I've got some interesting things on deck for today's commentary. I will cover a broad swatch, from intraday to weekly charts. Let me start with an intraday look at the ES on a 3-minute chart. When the ES started to drop from today's shot at the 'short-term significant' 1074 area, I wanted in. I was waiting for an opportunity to arise. I actually got two great ones. The first, which I'm not going to show (I can't show it all) was a near perfect '4-Point Continuation Pattern', which was clearly defined on the 1-minute chart. The next opportunity was in the form of an ABCD pattern set up to continue the trend. I'll highlight the ABCD that I was looking at, with the results. This is one of my absolute favorite ways to trade. I thought this was a fantastic trading opportunity. Go to your own charts and see what type of groupings you come up with. Not only did I like how the Fibonaccis laid out, but I also saw one of those 'obvious' things that I wanted on the chart. I noticed that swing-low off on the left of the chart and the 'congestion' (that was a serious pattern in there) before this ABCD started. Let me clarify by adding in a line to show what I was watching. This line went from the swing-low and right through the center of the 'congestion'. And it went right through the area where the ABCD completed. It rarely gets any better than this for me: an ABCD completing in a harmonic area with some classical analysis lining up in the same area. You saw what happened. Let's move on to a completely different area. I was noticing that the cyclicals had broken out above the bull market top (and the retail index is getting close). Yes, you read that right. While the S&P is struggling at the .382 off the top, the Morgan Stanley cyclical index has taken out the bull market high. So I pulled up a chart, wondering if I should have been watching this and if I would have gotten any kind of signal had I been watching. Take a look at what I saw on the weekly chart. I outlined the critical area. If you follow Scott Carney over at HarmonicTrader.com, you know exactly what you are looking at. There is no excuse to miss something like this one. I was so busy with the major indices I didn't even check this out. I wanted to show this one for several reasons, the main one being: how would you have managed this one if you had seen the pattern and gotten in there? For me there is no doubt that I would still be in a large part of this trade. Go down to the daily chart and run your 'Trading Plan' over this one, and see where you think you would be. If you wouldn't still be in a large part of the trade, you should read Kane Trading on: Trailing Stops. I wrote that book because in the early days of my trading I was grabbing profits way too soon and missing moves like this. This move is just incredible, and needs to be maximized. After seeing this cyclical index chart I started looking for 'proxies' to trade the cyclicals. I came across the consumer staples SPDR, ticker symbol XLP. Take a look at what I saw there. I'll highlight the pattern and put my grouping on the chart in one shot here. I don't need any more than this. Keep in mind that this grouping could have been put on the chart months before the reversal (for those of us not asleep at the switch, like me). The move hasn't been as huge as the move in the cyclical index, as this proxy is not real close. I point it out here to show this magnificent pattern and to invite the reader to use this example to test your exit strategies. But there's something else. One of my numbers in my grouping is one that I develop in Kane Trading on: Advanced Fibonacci Trading Concepts. It is a number that I use very frequently in my trading, and you will rarely, if ever, see it elsewhere. I'll put just that number on the chart, with the pattern outline. I use the 1.902 all the time, and find it very important for my techniques. The full Fibonacci derivation is in the book, with discussion on how I use it. Trust me, once you see how it is derived, you'll be amazed you didn't think of it yourself. Not convinced yet? Let's look at today. Before I show an example from today's ES 3-minute chart, though, let me make a comment. One of the things that I emphasize heavily in AFTC is that I don't use the groupings techniques to try to determine the end of the trend on my traded timeframe. What I sometimes do is use the techniques to help me with my management phase, or to alert me to points where a tradable pullback may start, so I can start creating groupings. Now let's look at the chart, keeping this in mind. Take a look where the ABCD pullback started. Another coincidence? Well, nothing that anyone can say will convince me of that. I may be using a lot of new Fibonacci numbers and concepts that I've derived/discovered, but if you know my style, you know that I only use something if it works for me. Explore this and see what you find. I think you'll be surprised.


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