Kane Trading - Education for Serious Traders

					January 28, 2004 Commentary- Boy, was today interesting. The market never ceases to surprise and amaze me. Although I rarely, if ever, trade what I think the market may do, I still enjoy 'making my best guess'. I thought they would sell the announcement today, and once the 'price was right', come in and take it up strong. Nope. I decided on an area that looked good for a long trade. I built a grouping, and got ready. Let's look at the ES on a 13-minute timeframe. The area was based on an ABCD pattern with a very tight (two tick) grouping at the completion point. There were quite a few numbers in the grouping, many of them very significant numbers in my opinion. Some of the numbers came from the 60-minute timeframe. If there was some serious selling, I expected the ES to reach this point. Let's look at the chart a few bars later. The ES hit the point very quickly, on a precipitous drop. Normally I would be inclined to stand aside with a drop like that, but this is a 'fed' play, and I was playing for the over-reaction and strong reversal that I've seen many times before. I got a long trigger on the lower timeframe(s). I was using a combination of 1-minute and 3-minute timeframes to determine my entry. Let's look at the 3-minute chart shortly after my entry. The ES went nowhere, and soon a 4-Point Continuation Pattern set up and triggered on the 1-minute chart. I didn't like the looks of this. Instead of taking this off at a small loss I decided on another plan of action. I wanted to trade a failure of this grouping. If it broke down through the grouping, I was going to take the long trade off and go short. I was going to 'flip'. Let's look at where the ES went from here, and I'll point out what I did. I added some horizontal lines to show the area of the grouping. The first arrow shows the area where I closed out and got short (flipped). I try not to 'flip' too often, but there are times when I do it. I scaled out a few times on the drop so that if it turned on me I would get out with a small profit or a scratch. I sat on the rest. The ES started up strong, and I normally would scale out of the rest as it went up. This time I decided to see if the grouping, which I thought was very significant and which caused a bounce before it broke, would act as resistance. I felt that I would possibly have to give back all, and maybe a little more than, the profits I had in the remaining contracts, but even if the area didn't hold I still could scratch the trade. I felt it was worth a shot because the selling was so harsh. When we got a reversal bar and entry trigger coming right out of the grouping, I decided to add back the contracts that I had covered. The second arrow shows the area where I added back to the play. I was planning on stopping the whole trade out if it didn't follow through strongly. Any backing and filling and I was not going to wait around and see what was going to happen. I've played this way many times before, and most of the time I feel that it was a good play. Sometimes I get burned, but that's trading. This pullback was just too nice, and too well set up for me to pass on. I got nice follow through, and I was able to trail some of the contracts down for most of the move. It was not a huge move by any stretch, but it more than made up my loss on the long play and left me with a good solid trade. Ah, and now the hard part. What about the three plays we have been watching? I agonized over this one but made some on the fly decisions. I don't like how the market didn't get picked up today. They may come in like crazy tomorrow (or like they did at 3:30 AM last night, take a look at the GLOBEX data), I don't know. But the action looked overly weak, and I decided to lighten up. I know that I said I'd wait to get taken out on the way down, but that was based on 'normal' market action. That is overridden when I see something like today. I decided to bring the FDX play down to 50% and I took another 20% off the VTSS play. That leaves me with 20% still open in VTSS. Believe it or not, I decided to hold the PDLI. It didn't weaken as much as I thought it would under the circumstances, so I decided to hold and keep my stop tight. I just didn't see banking 25 or 50 cents on the play. This way if my inclination on the market weakness doesn't come to pass, I'm still looking at that one, a good chunk of the FDX, and some VTSS. Lastly, I want to make it clear that although I normally let my management plan do its thing, factored into that are alternate options if the market behavior radically changes. I felt today was pretty radical. If you want to see really radical, take a look at a 1-minute chart of the EUR/USD when the announcement was made. Now that was something. We'll see tomorrow what they decide to do with this thing. If they don't pick it up, I'm leaning on the short side.


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