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 December 29, 2003 Commentary
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Now that was awesome, wasn't it? I got up this morning,
took one look at the market, and realized that I must get long. No ifs, ands or
buts. All I had on my mind was the hope that the market would pull back to a
nice grouping and give me my chance.
Today was the quintessential day
demonstrating why I trade using groupings and not just patterns. Don't get me
wrong; I love patterns. But I needed more for my trading, and so I
developed my grouping techniques. And why did I feel I needed more?
There are times when the market is
very tradable, but no patterns develop. Today was a time like that. You can
just about always find a significant grouping to trade against, if you know how
to build them. I outline this very clearly in Kane Trading on: Advanced Fibonacci
Trading Concepts.
After the early high was set today in the ES (for fun,
calculate what retracement would land exactly at the morning top from today,
going from Friday's high to the Friday afternoon low. It's one of my new
numbers from AFTC, exactly.), some selling began. I put a grouping on
the chart.
I built this grouping around the .486 retracement (from
the low of Friday afternoon's trading) that I developed in AFTC. I
noticed that this retracement overlapped exactly with a 1.0 price projection of
the last pullback from Friday's high to the low right before the close (in
other words, a pullback equal to the last pullback). Let's look at a 3-minute
chart of the ES showing these two numbers.
I liked what I saw here, and then I noticed
something else. I looked at the data right before the open, and tried an .886
retracement from the last swing-low to the high of the day so far. Let's look
at this on a chart.
Look at the ES price of the retracement. It's
essentially at exactly the same point as the other two numbers. I had my point
of interest. But there were other numbers there, too. Some numbers came from
previous swing-points from days ago. And some were from the pullback itself.
Let's look at an interesting one.
What did I even add in there? The overlap is so close you can't
even discern what happened. I added a 3.14 (pi) external retracement onto the
chart. I left the anchor points so that you can see where I did this
calculation from. As many of you hopefully recall, I have pointed out in the
past how an Indian mathematician has come up with an equation directly relating
pi with Phi (the Golden ratio = 1.618).
Given all this, I felt that I had a solid
grouping to trade against. I also noted that the grouping was just above the
open gap area, and many times when the market is so bullish they start to pick
it up just as the price gets close to the gap. If I got an entry signal on the
lower timeframe I was going to trade this grouping (I used the 1-minute chart,
even though I feel that I have to be careful on that timeframe because of the
noise.) I got a great trigger. Let's see how this played out.
This one played out great and my trailing stops kept me in a big
portion of the trade all the way to the close. If I had waited for a pattern to
develop I would have had to sit this whole move out. Let me emphasize once
again that I love patterns. I trade them all the time. But I want the
diversity to be able to pick out opportunities like this also. I can't
overemphasize how important the grouping techniques are to my own
trading.
Remember to be very careful tomorrow, as many people are on
vacation and the lack of liquidity can be a real killer.
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