Kane Trading - Education for Serious Traders

					April 18, 2004 Commentary (weekend edition)- Today I will be covering a few interesting things on the charts. Both are aspects that help me greatly in my trading. The first item is straight out of the Kane Trading philosophy, and straight out of Kane Trading on: Entry Techniques. The second item is a very interesting and useful observation that I noted for the readers awhile back. I would like to look at that in detail again today. Before we begin, I'd like to do a quick note on the new book, Kane Trading on: Multiple Timeframes and 'Context'. I now have the book listed on the 'Books' page, and it can be ordered immediately if you like. I will ship those out as soon as they are available from the printer, supposedly on Wednesday. Since I have to return from the printer with them and do my quality control check on each and every copy, as I always do, I suspect I will begin actual shipping on Friday. Although I think that I am having enough copies printed on this first run to satisfy the initial demand, understand that I do the books basically 'print on demand', as opposed to running a large inventory and tying up trading capital. My point is, there is a slight chance that if you wait until later in the week to order, I may have sold out the first run, and you might have to wait until I get another run printed. That would only be a slight delay, but if you are very anxious for your copy, I would suggest that you don't wait. I'm not bringing this up to sell more books, as it only makes sense that those that plan to buy are going to buy, and my saying 'buy now' isn't going to make anyone buy that didn't plan to buy. It's just that this is the first full-sized book that I have written that was entirely done by request, and I have had quite a few e-mails asking when it could be ordered. I don't know how well I have estimated the numbers and decided on the first run amount. I don't want anyone frustrated that they may have to wait a little bit because I didn't have a copy on hand for them. Hence, I'm giving a heads up to all those people that would be upset if they had to wait, and I'm saying that perhaps you might act early and avoid a potential wait. True, I could have ordered way more than I might sell on 'opening day', but like I said, would you pull money from a trading account to run extra books off? Hopefully, my initial estimate will be accurate. Let's move on to the charts for today. Recall from the last commentary that I had three areas of focus on the SOX index that I was planning on watching very closely. Let's review a 60-minute chart and refresh our memories. The SOX was setting up as an ABCD correction, set up to continue the uptrend off that substantial daily grouping that the big run up started from. I had been playing the long side quite aggressively off that grouping. Those long trades were long since closed as this new setup started to form. I saw the potential opportunity to establish a long bias again. Due to the limited space I didn't include my 'trader talk' last time with the potential areas of interest. In fact, I have been told again recently that I should shorten my commentary. There were several things that didn't feel right about this potential setup, though. The first was that run up was strong, and if the correction unfolded as I had it laid out, it would be pretty shallow with respect to the recent uptrend. Next, the C point was a very deep retracement, and those that follow me closely know that I don't like that type of setup very much. It creates what is almost a 'flat' ABCD, and I don't like to trade those except under exceptional circumstances. Finally, there was a substantial gap below that wouldn't be filled unless the lowest grouping was tested. Somehow it almost seemed like closing that gap at the 'last chance' grouping would not be a bullish stopping point. It all just didn't look right. The main point I want to make is that although I was aware of these potential issues, I still wanted to watch the area very closely. And that is the key thing here. If you found yourself saying something like 'Boy, Jim was way wrong on that call', then: a) You don't understand how I trade, and b) You didn't read, or forgot, my free article 'The Myth of Predicting the Market' In no way had I 'predicted' anything would happen there. I only said that if I got an entry trigger I planned to take a potential trade opportunity. If no entry trigger appeared, that would tell me something about the market character and the bias that I wanted to have for the time being. I don't make predictions, not for my own trading and especially not for anyone else's. I look for 'areas of interest' where I might want to make a trade, if certain things happen. Let's look at a 15-minute chart of the SOX as it went through that area, and I'll continue the explanation. Let's say my 'traded timeframe' (this is explained in detail in the new book) was the 60-minute chart. In reality it was higher than this, but we'll use the 60-minute for this example. Then my entry timeframe might be the 15-minute timeframe. I've highlighted the three price projections to show the three general areas where my groupings came together. These are the three 'areas of interest'. Now look at the price action as the SOX hit those areas. Do you think I had any entry triggers? Not even close by any technique in my entry techniques book. Not even remotely close. 'No trigger, no trade' I always say. The 'fade the entry' traders would take the full hit on this one. That's why I wrote 'A Pattern Trade Entry Technique', to try to offer a way to potentially be saved from this kind of beating. I had no entry here, and the action told me a lot about the market's intention. If you still don't grasp this, read the free article I mentioned and you'll understand what I mean here. This was a key area, and it didn't matter one bit to me what happened here. Whatever happened, it told me what to do next. That's how I trade. I don't trade by making high percentage 'predictions' about future events. I trade by using probabilities to find what I consider to be 'edges' in certain areas of interest, and then waiting for specific things to happen before I take action. Let's move on to the ES. Recall that I mentioned in my March 28, 2004 commentary how the ES has this habit of range trading for 2-4 days (sometimes up to 6 days), and then trending sharply, and then range trading again, over and over. This is most noticeable on the 13 or 15-minute charts. The ranges have been in the area of 10-15 points lately. Let's look back a little bit and see how this lays out. The ES trended down, range traded for about 3 days, and then blasted off into an uptrend. The trading range was in that 10-15 point range. Let's see what happened from there. The ES then range traded for approximately another 3 days, again in the lower end of that 10-15 point range. The range looks smaller here because the chart is compressed from having so much data on it over such a large point span. Then the ES blasted off into an uptrend phase. Let's continue on with this analysis. The ES then range traded for 4 days, once again in the 10-15 point range. This was followed by a blast off to the downside. Let's keep going with this. This brings us to the current state of affairs. The ES range traded again after the last downtrend, for just about 3 days. It is now out of the range. Is it blasting off for a run up? I don't know. I know what I'm watching for. I know how I am setting up my potential trades. Let me make a few points clear. I am not playing these as 'breakout' trades, ever. I don't think that is a successful method at all in this current market. I am using this observation to inform me of the possible state of the ES so that I can use that 'context' for setting up my Fibonacci and pattern setups, and making my decisions with regard to those setups. The other thing I need to make clear is that these ranges are 'choppy', not perfectly defined, and prone to headfakes in and out of the range. Nonetheless, they have been invaluable to my trading. When I look at them in this light, without a fine focus, they really give me a lot of useful information for my trading. I have had qualms about showing this here because it has really aided my trading, and perhaps it is unwise to reveal something that I feel is helping me gain an edge. I didn't realize how substantial of an edge I felt this was giving me (in combination with my usual techniques) until after I first revealed it in the commentary. By then the 'cat was out of the bag', and hence I have decided to keep discussing it. Next time maybe I'll be more careful with what I say! Before we close, did you notice the XOI at new all-time highs, just as I suspected? And crude setting new contract highs? This is very interesting. I am still in a fair amount of the AMZN trade, a small part of the CI trade, and long gone on the SCH trade. I will try to post more of my potential stock trades in the coming weeks. The next commentary will be the mid-week edition, posted Wednesday.


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