Kane Trading - Education for Serious Traders

					February 18, 2004 Commentary- I got quite a few e-mails about yesterday's commentary. I guess my use of context is really hitting home for quite a few people. It's gotten to the point where I think I may do an eArticle (which will also be available in hard copy version, just like the other eArticles) on context as the next item on my agenda. Of course, you all know what that means. I'd have to push Kane Trading on: Trade Management out even further. I really wanted to get busy on that and get that wrapped up. I didn't want to take on any more writing tasks until that was done. On the other hand the amount of e-mails and questions that I am getting on context, and use of timeframes, makes me think I should pull the material on those two topics together and get articles out on those areas. Or possibly combine the material I have and do it as a book. If I did the both articles, or did them together as a book, it would push Trade Management way, way out. So it's sort of a dilemma for me, what to do. I'm still getting a fair amount of inquiries asking when Trade Management will be done. I know, I could give up trading and just crank them out. Nope, that isn't going to happen. I'm trying to cut down on the time spent on this project in order to focus, as I should be, on my trading. Well, I'll keep everyone informed via the 'What's New' section if I do start on an article. I just can't do it all right now. Eventually I will get to everything that is being requested, but it will take me some time. In keeping with the context theme, let's revisit PDLI. I'll start with the chart from the commentary on January 26, 2004. Now here's what I had to say in the commentary from January: "I didn't like this setup the second that I saw it. Don't get me wrong; it's a great looking setup, a real beauty. But I just didn't see PDLI going down in here. This is what I mean by 'context'. I don't to trade patterns without looking at how the pattern fits in the larger scope of things, what the general market is doing, the sector, etc. First, I looked at the biotech index. It seems to be forming a possible pattern trade, but that's up higher. Not only that, but it has a second, smaller pattern that completes at just about the same exact spot. Strike one. Next, this market is just so strong. Or should I say it grinds upwards so efficiently. I'm not looking to take too many short trades right now off of big patterns. This play calls for a fairly major top in PDLI. I just don't see that right now. It may happen, but the odds aren't favorable enough for me. Strike two. Finally, PDLI itself just looks strong. Too strong for me too try to pick an end to this run. I don't like patterns that call significant tops or bottoms, and this one sure would be. Strike three." Now, that sums up my thinking pretty well on that trade. I went on to state what my plan was: "My plan was to wait and see if the pattern/grouping failed. I want a very specific type of failure. This type of failure is one of my favorite ways to trade. I wanted to see PDLI come off the pattern/groupings like it was going to work out perfectly. I then wanted to see it move down for a little while. Then I wanted to see a strong reversal up and through the groupings. I got all this. This is a classic failed pattern trade for me at this point." As I have presented more of my ideas on context and timeframes, and answered a lot more e-mails (hence learning where people are struggling the most with these concepts), I have learned more of what to show to help explain this. Based on this I am going to, then, add another chart and some additional comments to this original presentation. The next step after the first chart is to see what the next timeframe up shows me. In this case it would be the weekly chart. Let's look at that, at about the point where PDLI was at in the above daily chart. When I go up in timeframe I am mostly looking to see that there aren't any red flags. I'm looking for something that just jumps out and says 'No way'. One example is if I see that the pattern I am looking at is trying to call the end to a fairly strong trend. Another thing I might see is a strong support or resistance area that simply isn't visible on the traded timeframe. It's an old cliché, but one I follow in most cases. Never short on support or buy at resistance. If I don't go up and look for context, as far 'up' as I have to go, I have no idea what is there that I, perhaps, can't see on my traded timeframe. So, what did I see on the weekly chart of PDLI? I saw that PDLI was in an uptrend, and nothing from the weekly chart tells me that the X point, the starting point of my pattern, is a major reversal point. You see a pattern like this one is set up to 'test' that X point. If the X point weren't a major reversal area, why would I take a pattern trade that is set up to test that point? The answer is: I wouldn't. So when I go to the weekly, I look to see if it turns out that the X point is part of a pattern, or hit at a major grouping, or has a more classical resistance zone there, or whatever I can discern from the chart. In this case, nothing like that presented itself to me. That's why I spend most of my time looking for patterns that are set up to continue the trend and not reverse it. If I plan to take a trade that reverses the traded timeframe trend (something I rarely do), the context has to come from the higher timeframe. But the chances are that I have already spotted that setup on the higher timeframe, and then I dropped down and saw the opportunity down there, not the other way around. This would be my more normal sequence because my eye simply ignores patterns set up to reverse major trends. Then, when I do a scan on a higher timeframe, if something is there I will 'see' the pattern, and use it for a trigger, more or less, of a trade on the higher timeframe. This is one of the most important things that I've learned, for my trading, when it comes to patterns. I just don't use them to reverse trends. This is diametrically opposed to how most pattern traders use these patterns. I'm not going to say that I think other traders or other styles are wrong, I'm only going to say that those other styles simply just don't work for me. That's why I came up with my way of playing them. And I'd also like to point out that there are many, many people out there that are simply cloning and copying things and packaging and selling them to an unsuspecting public. Among these unscrupulous people there is very little development going on, very little true understanding of the patterns, and very little collaboration with the few innovators in the field. For example, I work very closely with Scott Carney over at HarmonicTrader.com, as you all know. We have collaborated on many Fibonacci projects together and we are working on coauthoring some articles for eSignal right now, as well as some other things. When his new book is released very soon, it will be eminently clear who is repackaging and who is innovating. In the bibliography in his new book Scott cited all four of my books, next to references for Gann, Gartley, Hurst and Prechter. Talk about flattering. Now, why did he do that? He did it because we have worked together and collaborated on a lot of new developmental work in the area of Fibonacci patterns and analysis. We are at the cutting edge of this stuff. I'm not saying that to brag at all. In fact, if you know me and follow this site, you know I'm not the bragging type whatsoever. I'm simply trying to present what we are doing, and what we are doing is creating and discovering new stuff. I think my approach to contexts and timeframes with regard to patterns and Fibonacci trading is totally unique. It's so popular that I'm really leaning towards writing it all up as a book. And I feel that the material in Scott's new book is so new and profound that I plan to sell it on this site as a package deal of some sort with my own books. I want my readers to have that material available to incorporate into their 'Trading Plans', if they choose to. I bring this all up here to make sure that it is clear what I am presenting is quite unique, and is outlined in my books in great detail. I feel that there are a lot of people that follow my commentary, hoping that if they follow along long enough they will glean all the 'secrets' out of me and not have to buy the books. I suspect this based on how many books I sell, how large and varied my website traffic is, and the many e-mails that I get from people that haven't bought a single book. All I can say to this is: first off, you can't get the intricate details unless you read the books. I've written over one thousand pages of material, with more on the way. I can't re-explain it all in this short commentary. And if you don't want to spend a few hundred bucks for around a thousand pages of knowledge that has taken me years and years to develop, well, I wouldn't count on making it as a trader (not that you need my books to make it, but that you need a different attitude about your own education). I'm sorry if that offends some people. Some spend three grand on a computer in a heartbeat, but don't want to spend a few hundred for all that knowledge. Trust me, I'm not saying this to try to sell more books, I'm saying this because I'm trying to educate traders, and that's a tough job when they want my life's work for free, and to have me re-explain what I've already put down in the books. I have nothing to base my e-mail responses on when the person doesn't even know what's in the books! Anyways, enough on that. My point is, this is more a support forum and if you don't want to buy the books, that's fine, but it's too hard for me to try to answer questions and provide content when you don't have the prerequisite knowledge. Now, you buy the books and ask me questions about something that isn't clear to you, that's a whole different story, and I'm more than happy to help, as my many dedicated readers know.


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