Kane Trading - Education for Serious Traders

					January 27, 2004 Commentary- Today I'm going to cover a trade that I found in the ES on my favorite timeframe, the 3-minute. I've been noticing how common it is becoming for them to take it down in the AM and then ramp it in the afternoon. Usually I look for opportunities once they take it down, to play the up move. Sometimes I make short plays on the way to my potential long trade area. I rarely mention these because they are counter-trend and have many nuances that are difficult to describe in a short column like this. I use a lot of 'market feel' to decide if I am going to take a trade like that. Today I saw that the last rally carried to the area between the 1.272 and the 1.618 external retracement from the last pullback. Although I don't try to call the end of a trend like this, I felt that there was a good chance they would bring it down from this high. If it started to look weak and gave me a setup, I wanted to try a very short-term intraday play in the ES. Let's look at a chart showing the 1.272/1.618 area, and the early action. I'll use a 13-minute chart so that the entire pullback used will be visible. When trading counter-trend like this many times it's hard for me to create a solid grouping to trade against. Even if I could, I still think it's more guesswork than anything to try and pick the ends of trends. They tend to go through grouping after grouping, pattern after pattern, like they weren't there. Nonetheless, I can use the Fibonaccis and other tools (and I was using some other tools here) to give me areas where, if I get certain triggers, I might play a counter-trend trade, in the context of knowing exactly what kind of trade it is. Once the ES started to drop off after the gap open, then pullback and then fall off again, I was triggered with one of my entry triggers from Kane Trading on: Entry Techniques. Let's look at a 3-minute chart. The arrow points to the area where I was triggered. Now look at the chart. If you follow this column and know my style, especially on a very short-term intraday play, what did I do once the data after the arrow came onto the chart? Of course, I scratched it. I felt that slightly lower bar should have triggered some stops and away we go. When they came in hard for it right after that break, I hit the 'buy 'em in' button. Then I noticed a pattern setting up. The pattern I saw is a pattern that I use here and there when 'daytrading'. It may well work on longer timeframes, but I haven't tested it very much to have a good handle on that. Let's go to a 1-minute chart, where I can highlight the pattern. This pattern is frequently called an 'expanding triangle'. I have seen it called a variety of names, though. The pattern doesn't require much as far as an explanation. You can figure it out much easier by looking at the chart than by my explaining it. One of the most common triggers is to open a trade once the horizontal line I put on the chart is breached. Here's how I use the pattern. I use it as a trigger when it's in the direction I want to get on board. Then I look for a little bit more of a trigger once the horizontal line is broken. The arrow points to the area where I was convinced, and I took another shot. I was almost stopped out shortly after this, but I held tight with my stop and rode it out. I find it's important for me not to get too 'jumpy' if I've been stopped out once or twice. It sometimes takes me a try or two to catch something (sounds like fishing). Let's go back to the 3-minute and see what happened from here. I'll highlight the pattern and put both arrows on the chart to show my initial entry and my second entry. This time it dropped like a rock, much more than I had anticipated. Shortly after this chart capture I was stopped out on my final trailing stop. Then a magnificent ABCD pattern emerged. By then it was nearing the last hour and we had sold quite a bit, so I didn't take the trade, but it had a fantastic entry trigger. The ES went down some more, but at best it was a few point 'scalp'. I held tight with FDX, VTSS and PDLI. I feel the urge to close them all, thinking this market is going to tank. But that's exactly what I'm not going to do. Every time the market gets like this they buy it. Sooner or later it will tank, but I can't say when. So, my play is to get taken out on the way down. Over the long run I feel that I have done better doing this and staying in plays for the meat of the move. Sure, when I give some back it always makes me wonder if I should have closed out. But I sure feel good when it runs and I was thinking of closing out way back and I didn't. Maybe this thing is going to get hammered in here (after the fed announcement tomorrow?). But I can't trade maybes. I'm trying to show how I'm thinking as I manage plays. If I get stopped out of all these plays we are watching and I give back some of the profits, that doesn't mean I managed them wrong (wrong for my 'Trading Plan'). It only means this was one of the times I had to give back so that other times I can maximize the run.


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