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 January 23-25, 2004 Commentary
(weekend edition)-
Today's commentary is going to be
the first one that I've done since I started writing commentary that won't have
any charts. I felt that I had enough to discuss that I could skip the charts
for one day. Don't worry, though, I'm not planning on going on one of my
tirades, so you can safely read on.
One of the things that has helped me the most
when I read commentary is the 'trader talk'. It's fine to look at plays and
setups, but I want to know what the trader is thinking as the whole
thing unwinds. That's what helps me the most. For that reason I've tried to
think out loud as much as possible in my books and in this column. I have
enough thoughts today that I just want to focus on them.
As you know,
one of the plays that I'm actively managing is the FDX play. The traded
timeframe for me is the daily, with context coming from the weekly chart. There
was a nice 5-point pattern on the daily, with a tight grouping right at the
completion point.
What really attracted me to the play was the incredibly tight
overlap with two different Fibonacci retracements from the swing-lows from Oct
'98 and Sept '01. Those were both extremely significant market times, and the
fact that the retracements off those two lows hit right on my grouping was more
than fascinating to me.
I got very quick action off the grouping with a gap up
on volume. I took a riskier than usual entry after the gap move. I didn't just
chase my way in; I use a prescribed plan of entry for such situations. I felt
the overall context warranted such an approach. After a good start, FDX
stalled. It has been going nowhere since then.
It is interesting to watch. It went
back up to the high of the move to the penny, then fell off. It went down to
the previous day's low to the penny, and started to rally. A lot of people are
waiting to see what this thing does. But here's what I'm seeing.
Whenever I
see an area with this type of behavior, it implies to me that there are two
conflicting scenarios playing out. On the one hand, we have the 5-point pattern
and the weekly context, with the longer-term retracements going back over five
years. But there's always another hand (except when talking with economists,
who have three hands).
The market is very 'heavy' in here. And using other
techniques, there is a case to be made for this area to be a key turning point
to the downside. I won't go too heavily into this scenario, because a lot of
the basis for this case is 'non-Fibonacci'. This is not to say that if it isn't
Fibonacci I won't cover it, but my emphasis up until now has been on the
Fibonacci techniques.
Personally, I would like to expand to a
broader combination of Fibonacci and other techniques. I'm hesitant to do so
because a lot of my readers are exclusively Fibonacci in their methodology.
Here's where I ask the readership to send me feedback on their thoughts on
this. If I have techniques that work in conjunction with Fibonacci and
patterns, do you want me to include them? Or are your interests strictly
Fibonacci?
Chances are that I am going to start to include some
additional factors that support (or don't support) the techniques that I am
using, unless I get an overwhelming response not to. With all that said, let's
get back to FDX. What we have here is a situation where I'm in a trade that is
moving in my favor, but I see possible resistance above, or even a potential
turning point.
I have choices at this point. Some traders close out a position at
this point. If a short signal is obtained when in a long trade, they close out,
or flip. I have no problem with that approach, if it works for the trader. For
me to think about that I have to take into consideration the timeframes of the
conflicting signals, and the relative strength that I perceive the signals to
have.
For example, if I'm in a long trade based on a weekly chart and I
get a short signal on my 3-minute chart, I, of course, don't close out. The
weekly chart takes precedence. If the timeframes are close, then I may do
something. If I'm playing a daily chart and I get a strong short signal on a
60-minute chart, I may use that to scale out of some of the trade.
Unless I get
an equal, or higher timeframe, opposing signal on a trade, I'm not going to
consider closing the trade. One thing I consider is what may set up if the
trade that I am looking at works out. I try to avoid trades that once entered
and beginning to work favorably, are walking right into a counter-setup. This
is akin to the old maxim about never shorting on support or buying at
resistance.
Generally, as I've mentioned, once in a trade I tend to let it play
out, regardless of the counter-setups I get. I usually don't encounter this all
that often, as I'm always on the lookout for potential counter-setups before I
enter a trade. In this case I became aware of a potential counter-setup in the
current area from a reader, using a different methodology.
I am going to
let my trailing stops methodology play out in this case, but I wanted to point
this out for future discussion. I'm taking the approach in here that I can't
know which trend will resume in here. Since I can't know, I'm going to let this
one ride (for now) and it will tell me. My play is for the weekly uptrend to
resume, and create a fairly solid run up. A failure in here would likely negate
that premise.
I think my points here are, first, that I'm always watching the
setups to avoid being in trades where, after a short move, a counter-signal
appears. Second, if I've done the first step correctly, I let the trade ride
regardless of the smaller counter-signals. I stick with my management
plan.
This one will be interesting to watch, because it involves some
additional methodologies. Over time, I will likely add in some of these
techniques to the current mix, if warranted.
The other topic I'd like to cover
today should perk up more than a few ears. The most common question I have
gotten since I started this website and released my books has been: 'Do your
techniques apply to FOREX?' My standard answer has been something like: 'Well,
I've looked at some FOREX charts and it looks like they would apply, I don't
see why not. I feel it works quite well with currency futures…'
I've finally
decided to explore the FOREX markets. The call is too strong and the markets
just too inviting for me to resist any longer. My initial concern was with
regulatory issues, which I feel somewhat better about now. At least I feel
better enough that I think it's an area that I want to be involved in.
This process
won't happen fast for me. I still want to focus on what I am doing now, and
with the time commitment to running this website, I have precious little free
time. With the little time I can pull together, I'll use it exploring FOREX.
That process has already begun, and I'm doing some plays already.
It is going
to take me awhile to find out about the best places for charts, the best places
to trade through, and so on, for my style. I haven't found a place yet with
FOREX quotes that has the charting capabilities that I need. What I'm trying to
make clear is that I may not have much to say on the topic for some time, we'll
just have to wait and see.
Another thing is that I'm not likely to be able to post
any FOREX trade charts, at least not for a while. Once I find the charts that I
want to use, I'd have to secure permission to use them on the website. That's
not always easy (or even possible), and rarely is a quick process. Hence, for
the time being, it is going to be limited to written comments, at best. But
it is coming.
Let me review a few of the reasons why I'm looking at FOREX at this
time. The first reason is that it is definitely 'where the action is'. With
only a tiny handful of exceptions, every last trader I know from 'the old days'
is now heavy into FOREX trading. It is the most common topic for the questions
that I receive. I'm not a crowd follower, but I'm also not going to ignore
possible opportunity.
Next, I like the way the charts look. With
the VIX at incredible lows, the stock market is really dead intraday. Sure,
there are some playable days, but mostly it chops in a narrow range. That is
just not a fun game for me. With program trading frequently exceeding 50% of
the trading volume on the NYSE, it has become a real chopfest.
Sometimes I
feel like the vegi's at one of those Japanese restaurants where you watch the
guy go psycho with the ginsu knives. Sure, maybe my net after all this is still
pretty good, but am I having any fun? Many times, after the trading day is
over, I'm completely drained. Just hammered. It never used to be like
that.
Lastly, I like some of the aspects of FOREX. They have a
'guaranteed' stop loss policy. If you put a stop at a certain point, they
'guarantee' you a fill there. Regardless of what happens in the world, you
still get filled on your stop. Try that on GLOBEX. FOREX also trades 24 hours a
day. I can trade when I feel like it, not just for the RTH of the market. The
liquidity is there. Try that, too, on GLOBEX.
FOREX has no commissions. You pay
the spread, and the 'commissions' are basically figured into that. I did some
rough comparisons and found that the spread on the EUR/USD is about equal to
the spread and commissions I pay for an ES e-mini trade of equal size. Another
factor is pretty much no slippage. When you hit the order on your screen, you
get filled right at that price. I don't have enough experience yet to say if
that is always the case, but it has been every time so far.
You can also
'trail a stop' and walk away from a play. I can let a play run overnight,
knowing that I'm protected with a guaranteed stop. Even if half the world goes
up in smoke while I'm asleep, my stop is 'guaranteed'. At least that's what
they promised me.
The place I am working with also has a clause that says you can't
lose more than you put up as margin. They won't do a margin call. If you slip
below your margin, even by one cent, they close everything out. Try that with
futures.
All in all, I think it will be an interesting learning experience
at the very least. I'm anxious to answer the questions about my methodologies
and FOREX more decisively, at least as far as my own experience goes. If you
have any tips to pass on to me about things to watch out for, as far as
particular platforms, charting services, glitches or anything of that sort,
please send me an e-mail.
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