Kane Trading - Education for Serious Traders

					December 18, 2003 Commentary- Boy, what a day we had. The ramp up from yesterday's close continued without a break. Let's start with a look at that grouping that I put on the 13-minute ES chart. The grouping was an area I wanted to watch, to give me some idea of what the market's intentions were. This wasn't a grouping that I set up to make a trade against, it was a grouping I wanted to watch, because I felt that if that opening pop from Monday was an intermediate top, this is one of a few likely areas where I would expect a failure. Keep in mind one of the things you'll hear me repeating over and over again. If a grouping or pattern holds, it tells me something. And if it doesn't, that tells me something. After failing to fall significantly off that grouping, the ES took it out like it wasn't there. Let's look at the chart, with today's data on it. This confirmed, for me, what side of the market I wanted to be on. We already know that we had a fantastic setup below this grouping, and that setup was far more significant to the market than the grouping on this chart. Once I saw this grouping go, I was pretty sure what the outcome of the pattern setup and this failed grouping was going to be. Remember, a 'failed' setup or grouping is not a bad thing; it can be just as useful for trading as one that 'works'. I set many of these up to see how an issue behaves in that area, not solely to trade against. Let's review yesterday's NQ setup on the 3-minute chart. This is how we left it at day's end. I was playing the thrusts. Should I have been looking at the larger context more? Let's look at the pattern on the 13-minute chart, with today's data on the chart. What I played yesterday were those first two thrusts off the pattern completion. Once I saw the gap up, I knew what was in store, and what side I wanted to be on. Yesterday's ramp up had already taken out the grouping on our first chart from today's commentary. I was expecting continued ramping, and if I got any confirmation, that's the side I was going to play today. The indices just ramped for the rest of the day, and trend continuation techniques worked quite well. I was willing to jump on this trend without waiting for a significant pullback for multiple reasons. I had several patterns on my side. My grouping was taken out with no problem. And it was the day before 'quadruple witching', which has really been a ramp day as of late, in my opinion. That's enough for me to trade continuation entries. I don't feel it's necessary, at least for my trading, to catch every pattern or grouping right 'in the zone' or forget it. If the play is significant it will likely have many opportunities as it plays out. I feel that one of my strengths as a trader is that I can trade 'harmonically', and I can find ways to get in if I miss the exact harmonic entry. Just because I played the pattern with too short of an outlook, as it turned out, doesn't mean that I'm done until the next pattern shows up. It's just something to think about. Let's look at something that I spotted on the 60-minute ES chart. I spotted this pattern setting up in the ES. But what really caught my eye is another pattern forming right on top of it. Let's look at the same chart, but with the other pattern highlighted. There is an alternate ABCD pattern setting up right in the same area. If the ABCD wants to go to an AB=CD level, it lands just about exactly on my new 1.902 Fibonacci retracement for the XA pattern external retracement. Now why would I suspect that the ABCD might not make it to the AB=CD point? Go back further on the 60-minute chart. There is an even larger ABCD pattern setting up. It completes at just about 1095. Go back to November 21 for point A and do some calculations. I'm getting interested in the area between 1095 and 1099. But I must add in a strong caveat here. As outlined in Kane Trading on: Advanced Fibonacci Trading Concepts, I don't use the techniques to try to pick the ends of major trends. And this thing has been in a monster trend for nine months. I'm not going to call the end of that. My use for this area is to potentially play a countertrend trade on the lower timeframe, if one gets going, and for use in managing open trades. No way am I expecting the entire uptrend to end at this point. I'm watching how it behaves here, though, to decide which side of the market I want to be on. Let's finish with a quick look at what AMLN is doing. Here's the daily chart, with the groupings. I'm glad that I waited and opted for a higher confirmation entry technique, as I mentioned in my commentary from the 15th. This kept me out of this trade and out of the gap down. If I had not decided to up my entry requirements based on the poor market action at the time, I would be stopped out. Such is trading. The news I heard was that AMLN was asked by the FDA for additional information on one of their drugs. Even though the word is that they likely already have that information available, the market hated the news, and that's all I care about. It is interesting that the gap was through both the groupings, but not through the big gap that we have been watching. That gap still is not closed. I am still watching this one. If it starts to trickle down from here (beyond closing the gap at 21.25) I'll abandon it. If it starts to go up I may consider it for a trade. This type of high volume, climaxing over-reaction right in the potential trade area can sometimes set up a fantastic trade. I wanted an educational example for the readers, and this has been more than I could ask for. This one is chock full of trading reality. I'll update this as it plays out.


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