Kane Trading - Education for Serious Traders

					January 5, 2004 Commentary- Well, I guess my weekend commentary was taken in the way that I meant it, if my 'e-mail indicator' is any guideline. I didn't receive a single negative response, for which I am greatly pleased. Today was really something. Is this market bullish, or what? Not that I think it can't change on a dime, but it's up until proven wrong for me. Keep in mind that I mean this in the daily context. I'll be happy to take 3-minute or 13-minute short trades when they set up, but I'm just not going to try to call the end to this 10-month old trend. I know a lot of readers love to use patterns and Fibonacci to call reversals. I use them to call reversals all the time. But I use them to call reversals on the lower timeframe, for continuation of the larger scope trend. It's all in Kane Trading on: Advanced Fibonacci Trading Concepts, and all throughout every one of my works. Timeframes and context are critical. I know I have agreement from many readers, as this is becoming one of the most asked about areas in the e-mails that I receive. I will be doing something on my use of timeframes and context as soon as I can. As I mentioned, though, I'm also getting asked quite a bit when Kane Trading on: Trade Management will be done, and I don't want to delay that project. All in due time, I promise. Let's move on to some absolutely fantastic action today in the market, from an educational standpoint. I was fully expecting the pop open today (based on this new pattern/idea that I've been trying to pull together), and I wanted to get long given any well set up opportunity. One presented itself to me in the form of an ABCD pattern. Although I'm very Fibonacci intensive, as I've mentioned before, I also watch the classical stuff, too. I like to blend the harmonics with standard analysis, if for nothing more than to give me ideas about what others might be doing. I've noticed (and mentioned in this column) that when the market is acting this bullish and has a gap like this, it's not uncommon for them to come in strong right at the low for the regular session. This happened to be right where the ABCD pattern completed. Let's look at a 3-minute ES chart. If I got an entry trigger upon the completion of the pattern it would coincide with a bounce off that line. This is an area that I watch closely. If they roll it over and take me out, that's fine, since my stop can be very close, and I feel that the odds are in my favor. I did get a nice entry trigger, and I got long. Let's move ahead and see how it progressed. Not much action, just a slow trickle up. I was up a bit, and trying to just stay with the trade. Give it room to breathe. As we all know, I tend to get out of trades if they don't really go. But the market lately seems to require more patience. I almost closed and took the small profit several times, but I held tight. Then something happened… I don't know if it was a large sell program (the volume wasn't that excessive) or another of those GLOBEX liquidity crunches during the mid-day, or what. But it just started to drop like a rock. I had no idea what was going on, if we had been attacked again, or what. The news is too slow for something like this, I had to get out fast. The first arrow shows the area where I got in. The second arrow shows about where I got out, getting myself out as fast as my fingers could move. All in all a small loss, given I've seen near 100 point 'liquidity glitches' in the ES (most of which gets busted out). The point here is, no matter what happens now, I did the right thing for my trading plan. This thing could have moved a huge amount in seconds and I had no idea what was happening. He (or she) who hesitates is lost. Now my experience has been that if this is one of those 'anomalies', it just about never sets up a trend in the direction of the anomaly. It frequently bounces right back and either just does nothing after that, or it continues in the opposite direction of the anomaly (in this case up). I got to studying the situation, and decided that if this was a 'glitch', the pattern trade was still valid in my opinion. I was going to pretend the 'glitch' never happened, and if it bounced back and gave me a good-looking re-entry trigger, I was going back in. That's just what it did. Let's go back to the 3-minute chart. The ES bounced right back up and came back down to a .786 retracement. The action looked like there just weren't any sellers. It turned back up and gave me an entry trigger. I had a great place for a nice, tight technical stop, so I took the entry. I scaled out on the way up, closing the final amount just before the close. It was a fantastic trade. Now, why was this doubly important to me? If I had gotten scared at that 'glitch' and failed to see a great opportunity setting up before me, I would have been down for the day. Instead I made up that small loss and added significantly to the P column of the P&L statement. I kept cool and used my experience to make a judgment call on what I thought was happening. For me, second or third entries are a big part of my 'Trading Plan'. This is a perfect example of why I prefer to get out and get back in. Let's look at one more thing real quick before I wrap this up. Recall how I got a long entry trigger on the VTSS play? It started up, and then it pulled back a little. Not near enough to threaten any stop I might have in place, but enough to wonder if it was just going to meander around. They had announced a buyout of another company and the street didn't seem to like it. I held tight, and waited. This is something that I'm forcing myself to do more and more in this market (I'm adapting to changing conditions). Today the payoff started. Let's look at a daily, with the patterns and groupings. We got a big gap up, a strong run, and a strong close. Recall that my entry was a trigger off the lower grouping. Today was a day for a small scale out, based on my plan. I explain this in great detail in Kane Trading on: Trailing Stops, and I will have more to say about it in Kane Trading on: Trade Management. Barring a catastrophic market event in VTSS, this is now a no-lose trade. I'll update this as it progresses. I'll attempt to do some more follow up in the coming days on things that we have been looking at, if the market allows me to. It seems, though, that there's something interesting to look at just about every day, so the follow up may get pushed back.


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