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 November 17, 2003
Commentary-
The question arises: what should I put into
my daily commentary? There are many choices at this juncture. About the only
thing that I can be sure of is that six months or a year from now this
commentary section will likely be vastly different than whatever format I
choose now. By its very nature, this will be an evolving column. Given all
that, the question still remains, what should I do?
Looking to
other columns, you see a vast array of possibilities. Some recap the day's
events, and others predict tomorrow's action. And there are variations
everywhere in between those styles. So I had to go back to my 'mission
statement', and look over my reason for doing this website. There I found this
quote, from the About Kane
Trading page: "My intention is to provide quality educational products for
traders." That sums up what I want to do. I want to help educate
traders.
With this renewed look at my intentions, I came to the following
conclusions. I am not going to 'recap' the trading day from the standpoint of
economic reports, earnings, what index went where on what volume, and so on.
Websites that do this are abundant. I'm also not going to make predictions
where I think the market will be tomorrow, or at any point in the future. I'm
not a clairvoyant, and I can't see the future. I trade using probabilities, not
certainties.
What I've decided to do is attempt to provide the best educational
value that I can, given that this is just a small daily column. The column will
be designed to complement the educational materials that I provide on the
website. I will do a variety of things to achieve this. Some days I'll point
out a setup, or several setups, that I may have seen unfold during the day's
action. I'll discuss aspects of what I saw, and why it drew my attention. I'll
outline parameters that I may have used to consider a potential trade.
On other
days, I'll point out potential trade setups that I am watching that may be
unfolding. This will not be done to encourage anyone to trade these setups, or
to make any claim that the setups will 'work'. My methodology has me watching
for certain things to happen based on my 'Trading Plan'. If the
pieces fall together I may then initiate a trade. Sometimes this won't be clear
until the last minute.
But understand that these are setups based on my
plan, for me. Unless you happen to have the exact same 'Trading Plan'
and the exact same life as me, the parameters that I use will not be right for
you. Given this perspective, I will outline these potential setups from time to
time so that the reader can follow along with my unfolding commentary in the
days that follow. That's where the educational value lies, I feel.
Some days I
may not even discuss the market action at all. I may just discuss an
interesting setup or technique, or whatever I feel may be of educational value
to the reader. I am trying to help traders become better traders, and to help
them avoid many of the pitfalls that trading presents. Any time that I feel I
have something to say to that end, I may present it in this column.
I will rely on constructive input
from my readers to help guide me on making this column as useful as possible.
As I said, this column will be an evolving project. I'll see what works, and
what doesn't, and adjust accordingly. With all that said, let's move on to
today's column.
Today's commentary will be quite a bit longer, with more charts,
than what I expect to be the usual, since this is the 'introductory' column.
I'd like to run through a typical intraday series of potential setups. On
Friday I saw a potential setup forming on the S&P e-mini, on the 3 and
13-minute charts. Let's start with a 13-minute chart of the ES, and what I was
looking at.
The ES broke a trendline and really dropped
off. If the open today was down, I wanted to be looking for possible short
entries. Until the 13-minute trend really developed, though, these were going
to be opportunites on the 3-minute timeframe. I like to trade the ES on the
3-minute timeframe, with the setups coming from the 13-minute timeframe. In
this case the setups aren't going to be able to get a lot of context from the
13-minute timeframe just yet, since the trend is new on that timeframe. Let's
look at a 3-minute chart from the close on Friday.
When the ES started to bounce, I created a grouping on
the chart against which I might consider a short trade. Given that it was the
end of the day, and the week, though, I was not looking to take any trades at
that point. But I was thinking that if the ES continued down on Monday's open,
the next opportunity may be one I would take. Let's move ahead to shortly after
today's open.
At this point I'm looking to create
a grouping against which to get short, for a continuation of the
downtrend.
I've added my
grouping onto the chart, and now I wait to see how the ES reacts. If I get an
entry signal I may take it, but if I don't get a signal, I'll just keep
watching for additional setups. When trading the 3-minute chart, I drop down to
the 1-minute chart for entry signals. If the 1-minute is too choppy (and the
1-minute ES frequently is), I use a combination of the 1-minute and the
3-minute for the entry signal.
I did get an entry signal off of the grouping. The ES
dropped nicely, and then started to rebound again. What am I thinking here?
Create another grouping to get short against for another trade. The 3-minute is
now in a clear, very tradable downtrend. Let's see what the next grouping that
I built looks like.
Once I have
my grouping in place, I just sit back and see if I get an entry signal.
Again I got
an entry signal, and again the ES turned at the grouping and dropped. Once the
ES turns back up, the process is repeated once again. I put a grouping on the
chart, and wait and see what happens. This time, I'm not as enthusiastic about
the setup, though. The ES has trended down quite a bit by now, so I see the
risk of a reversal, if only temporary, as greatly increasing. The ES has also
traded above the moving average on the chart for the first time, and a small
'double bottom' has formed. Although none of this would preclude me from taking
a trade off of this grouping if I got an entry signal, I would be thinking
about a smaller position, perhaps a half position, at this point.
This was a great day for trading. The ES
drops once again off of the grouping. This trend has gone quite a long ways for
a 3-minute timeframe, and is in need of a greater correction than any seen up
to this point. Keep in mind, as I set up various groupings, I always keep an
eye on the larger context, looking for larger scope groupings on the higher
timeframes. This keeps me out of trades that are approaching areas that have
greater import on the larger timeframes. In other words, I don't short an issue
that is just about to enter a support area on a larger timeframe.
Let me finish
with a daily chart on the ES. I was watching a grouping on the daily, and
waiting to see how the ES would behave when it hit the grouping. It was this
grouping that alerted me to the possible end of the 3-minute downtrend. I like
to have groupings on multiple timeframes when I trade. I attempt to trade only
when the trade that I am looking at is not in conflict with the other
timeframes.
The ES turned right in the upper
part of the grouping. Knowing that this grouping was 'lurking' right below was
part of the reason why I was getting leery about any further short trades in
the ES on the 3-minute timeframe. This will be interesting to watch tomorrow,
and as the week unfolds. Will this grouping be a significant reversal point on
the daily, pointing to the end of this correction and the resumption of the
uptrend?
I don't know. What I do know is that I'm forever on the hunt for
setups that meet the criteria of my 'Trading Plan'. This last grouping on the
daily definitely was a great setup for my plan. It triggered on the lower
timeframe, and now it's the waiting game. Waiting and managing. That's element
four in the 'Critical Elements of a
Trade'. More to come on this as it plays out.
As I conclude, let me make it clear
that just because I chose an intraday series as my examples for today, I am by
no means only an intraday trader. I trade whatever timeframe I see a setup on.
I will present examples from all timeframes in this column, just as I do in my
books and other works. I find that the methods I use work equally well on
pretty much any timeframe. Rest assured, you position traders and swing
traders, that this website will have plenty for you to utilize.
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