Kane Trading - Education for Serious Traders

					December 26-28, 2003 Commentary (weekend edition)- With the market being dead for the holidays, I decided this would be a good time to clean house a little. I'll review some past trades and make some comments on what has happened with them. Let's start with the ES long trade on a daily timeframe that I pointed out back in November. Here's the chart showing the grouping and the ES price action after the first day it started to take off from the grouping. This was the trade that 'wiggled' me out. I caught the first move off the top of the grouping, only to stop out as it came back to retest the grouping. That trade netted a small profit, and left me looking for re-entry if the ES came off the grouping and started to go (which I later did get). Recall that I pointed out how significant I thought this area was, due to the fact that the ES didn't seem to be able to take the grouping out, and was spending most of this congestion time above the grouping. This was combined with the fact that the bond was set up in the same manner and was behaving in pretty much the same way, but as expected, under its grouping. I also pointed out that many traders would not have been as 'jumpy' as I was, and likely would have stayed in this trade after an initial entry. Let's see how this has played out since the ES left the grouping. I have to switch to the current contract, the March '04 contract, but I will highlight the area on the chart where the grouping was with an arrow. That area did turn out to be quite significant, and led to a spectacular opportunity for a trade on the daily timeframe. Depending on the management plan, it is possible, even likely, that many traders would still be in this long trade, at least on a part of the trade. As far as eventual results, this trade was a classic example of a truly great trade using the grouping technique. And as far as 'real-life' trading, it had a classic 'wiggle' and it penetrated the groupings more than I like to see (I like to see a strong bounce right off the grouping(s), but then, again, who doesn't?). Yet it was a fantastic trade, and is still in play for many who found entry off the grouping. This is the kind of trade that helps make my 'Trading Plan' work for me. Let's look now at the daily bond trade. Last time I discussed this one, the bond had come off the grouping and I had a potential three points on the trade. That's a pretty fair amount for a bond trade, but in the context of the pattern and the daily timeframe, the possible move had barely started. I'll show the daily chart with the grouping, with the bond at the point where it had moved just over three points off the grouping. The last bar clearly shows a fairly long tail and a pretty strong close. Although this may be nothing more than a small bounce, it could also be the start of the end of the down move. This trade would clearly be in the management phase at this point. As I cover in great detail in Kane Trading on: Trailing Stops, what is your plan here? What type of trend are you trying to play here? How much will you let this come back against you? When, if at all, will you take partial profits? If you don't know how to handle questions like these before you enter a trade, I suggest that you get Trailing Stops. This is a critical aspect of trading, and most people choose to simply ignore it. I put together Trailing Stops because I felt that there were few, if any, books out there that adequately helped me with this aspect of trading. I feel that this book is the best book on the market right now for dealing with maximizing profits on trades that are moving in the trader's favor. Let's see what happened with this trade. I have to move out to the March '04 contract. I will highlight the pattern that motivated me to build my grouping, and put an arrow on the chart to show where the grouping was. Once the bond moved just over those three points, that was it. After three sideways days, it exploded up. It pulled back almost to the same area, and then off it went, never looking back. This was not a busted trade. This was a darn good trade. For me, there is essentially no way that I could have chosen to manage this trade (within the parameters of my 'Trading Plan') and not walked away with some profit. It's just that this trade wasn't one of the few, like the ES trade above, that really took off. The reality is that most trades don't take off to be huge winners. In my experience, most of the money comes from the 'small' profits on trades like this bond trade. The big ones add a nice pop into the account, but they are not that common. That's just trading reality. I feel it is important to maximize the big winners to be net profitable, but I also feel that it is just as important to not let trades like this bond trade turn into losers. It's a delicate balancing act, because if you take profits quickly I do believe that you will go broke. I discuss this at length in Trailing Stops. But if you have a lot of small winners and you let them all turn into losers, I think you'll be in a lot of trouble. This bond trade is a fantastic example of real-life trading reality. Many, many times you will see me show a grouping that I am watching, and it doesn't do the classic, 'well-chosen' bounce off the potential trade area and rocket off for a huge winner. That's because I am showing many of these in 'real-time', and I don't have the luxury of only showing the massive winners. You get to see what really happens when you try to make trades in 'real-time'. That's the reason I stress trade management so heavily. I feel that a major aspect of being a winning trader is to be able to maximize just about every situation. That's what leads to a net positive outcome plan, in my opinion, not endlessly trying to find a technique that leads to a high percentage of winners that all go straight to the moon. It would be great if such a technique was possible, but I don't believe it is (except for very rare and short-term anomalies that pop up from time to time. But you'd have to be lucky enough to discover one, and then not tell anyone until you exploited it to its natural end.). Hence I stress a more 'real-world' approach of developing a complete 'Trading Plan'. Let's move on to one more chart, and that's the double pattern that I spotted a while back on VTSS, on a daily chart. What has happened with that? I filled out the groupings, since I left it to the reader to do that when I showed this the last time, highlighting only the general area. VTSS did a number like the ES example. It bounced off the top of the first grouping and made a nice move. It then came right back down and went to the bottom grouping. Did I care? Nope. If I decide to take an entry off a move off the very top of a grouping I know that I am taking entry at the earliest possible time for my technique. Many of these reverse and then go deeper into the grouping(s). I almost expect this. I choose not to wait many times because I don't want to miss the trade. I know that in most cases, though, if I get the initial 'pop' and then a rollover, I can walk away with a small profit, and then look to re-enter after a bounce from the lower grouping area. I plan for this. Some traders may prefer to wait and accept missing trades that come off the very top of the grouping(s). It's an individual preference, based on one's individual 'Trading Plan'. I have found that a large percentage of the time there is some kind of a 'bounce' at the grouping(s). If I get this quick 'pop' I can almost always manage the trade in such a way that I either would get a small profit or a breakeven (scratch) trade out of it. For that reason I like to take my shot, and if it rolls back, just take another shot later. That's why I don't worry if many, or even most, of the groupings don't point to huge winners. Many times you'll see a move off the grouping, it will go for a while, and then roll over and take the grouping out. Some may watch and see this as a failed trade. What I may have done is taken the trade, made a small profit on the initial move, closed out, and then taken an entry on the failed grouping. When others are seeing a losing trade, I may already be working a second winning trade. Let's get back to VTSS. I spotted an entry off the lower grouping. VTSS made a nice initial move off that area, pulled back, and then started up again. That's were it stands right now. I'm now in the management phase. As long as I get that initial 'pop', which we got here, I'm going to be in great shape. Except for a large gap down (always a possibility with trading), this trade is now out of the possible losing category for me. Maybe it will be a scratch, but that's fine with me. We'll keep an eye on this one for future discussion. And what about AMLN? I'm still watching that one. It requires an entire column itself, and I'm hoping to do that soon, as soon as it makes some kind of move. Remember that we have another holiday-shortened week ahead of us. Given the lack of liquidity last week, I'm going to be keeping it very light this week. As an aside, the latest statistic released by the NYSE had program trading volume just a fraction under 50%!! That's just incomprehensible in my opinion.


	NOTE: Reading this page or any page on the Kane Trading website, or utilizing this website and any material contained herein in any way, shall constitute an acknowledgement that you have read, understood and agreed to all the disclaimers, terms & conditions, and policies of this site.

	This website is best viewed with MSIE 6.0, text size set to medium, and screen resolution set to 1024 by 768. Copyright © 2003 Kane Trading. All rights reserved.