Kane Trading - Education for Serious Traders

					April 21, 2004 Commentary (mid-week edition)- Today I'll start out with some news on the new book, and then I'm going to briefly discuss some possible changes in this column. Once we get through that I'll show some charts. I was able to pick up the new book, Kane Trading on: Multiple Timeframes and 'Context', at the printers today. The first orders went out shortly after that. I did my 'quality check' in the parking lot of the post office. Buyers were anxious to get their books, and I did everything I could to get them shipped. If you ordered early, your book should be on its way. As near as I can tell I did a pretty good job estimating the amount for the initial run, so I don't expect any delays for anyone ordering right now. Since I think my estimate was close, I went ahead and ordered another run when I picked these up. This way I will have them ready to go as I get orders over the next few weeks. I've been thinking about what I want to do with this commentary. One possibility is to just keep it like it is for now. Another is to move ahead with a member's section for those that want more detail, and to see more issues that I am looking at before potential trade areas are hit. I had originally planned to begin developing a member's section by now, but everything with this project has taken a lot more time than I had anticipated, and that has detracted from my trading. Given that, I am trying to cut back, not add to, the commitment. For now, then, I am going to hold off on a member's section. That leaves me with potentially modifying the current content a bit. This brings up the question as to why change it at all. I guess my reasoning is to try to reach as broad of an audience as possible. Remember that one of the main reasons I write this commentary is for people who check out my website and products to get a chance to see if the methodology is for them. I also write it to add some support and updates for the ongoing clients. This is a difficult task to do, at best, with such limited space and time. As it is it takes me over 3 hours, from start to finish, to do an average commentary. I'm contemplating one possible change that may make the format more useful for the greatest number of people. I am thinking about making one of the commentaries the same as they have been, and one, likely the weekend edition, more focused on potential setups that I am watching. I would then mostly just show the charts with the patterns and groupings for that edition, and not have a lot of discussion. There are a few issues that I am concerned about, though, if I decide to try this format. For starters, I run this website totally for educational purposes. It isn't, and never will be, a service that gives 'picks'. If I point out potential setups, it is for the educational value that this may provide. I don't want to point out things that I am watching if I have any hint that anyone would think I am making any kind of 'call' on that issue. This cuts right to the heart of what I teach on this site. A lot of it is clearly outlined in my free article 'The Myth of 'Predicting' the Market'. A classic example is the SOX setups that I discussed in the last two commentaries. Those setups were totally 'blown out'. I made no predictions about what might happen in those areas. I wasn't 'wrong' on the 'call', as I made no call. What I said was that if certain things happened in those areas, then I was looking to make a trade. Those things didn't happen, and no trade was initiated. Many, many of my potential setups are like this. As I mention in the free article, I don't care how many potential setups I have to watch until I see what I want line up. I have to see what happens, using the methodologies that I've outlined in this column and in the books, when the issue gets to the area (if it gets to the area). I have to see if it behaves the way I need it to, to induce me to trade. If I post a potential setup, and it is wrongly viewed as a 'call' or a 'pick', without a trigger or price action behavior considerations, it is completely out of 'context' and inappropriate to trade. Not to mention that I never make 'recommendations'. Even though I make this incredibly clear, I still prefer to focus on teaching traders to do the work on their own, letting them find their own potential trade areas. On the other hand, it can be of quite a bit of value for readers to see some of my setups beforehand, and to follow along and see what happens as they unfold. This will also give me issues to discuss in the mid-week commentary. I can refer to things on my watch list, and show when/where I may have been triggered, how a particular setup was blown out, how I'm managing a position, and so on. I do all this now, but not from a 'watch list' perspective. I may experiment with this starting with this weekend's column. I don't know if it is a feasible approach or not, but it can't hurt to try it. As always, I welcome feedback from the readership. If you like this column (a lot of you must, since I check the traffic stats regularly and I'm read in over 30 countries so far, and I have a lot of U.S traffic, too), then you need to give me input as to what you want. It's like voting. If you don't speak out and cast your vote, you'll just 'get what you get'. Let's move on to an interesting setup that developed yesterday in the ES. I'll start with a 13-minute timeframe, as it looked just after a setup came together on that chart. The ES opened up and quickly completed this pattern, right at a .618 retracement from the recent significant swing-high on April 8. After giving a classic pullback entry for those that wanted a lot of confirmation, the ES began to drop right off. Then something interesting happened. You can see it on the chart if you look closely. Let's drop down to a 3-minute timeframe, where it will be quite clear. A nice ABCD pattern came together, set up to continue the downtrend off that 13-minute timeframe pattern. As this setup started to form a newer member to the chat room pointed out the setup. I was watching it very closely at the time. I commented to him that my new book is laid out all around the concepts that were unfolded as we spoke. What's the 'context'? What's the trade premise? What am I seeing, and how does it fit into the 'overall picture'? How do I make decisions on which patterns to trade? In brief, we had a bearish 5-point pattern on the 13-minute that set up right at a .618 retracement from a recent significant swing-high. We got a strong response off that pattern, and then another setup formed on the lower 3-minute timeframe. This latter setup was in the direction of the previous setup. There are some other aspects that I don't have time to go into in this column, but we had a premise and 'context' for this setup. This is what I meant in the chat room, and what I cover extensively in the book. But then something very interesting happened, and pointed out the critical need, in my opinion, for a thorough understanding of 'context'. Let's look at the 3-minute chart just a bit after this last capture. Now it may be a bit hard to see, but a smaller 5-point pattern has formed, this time a bullish pattern. The ES is starting to react off that pattern. Uh-oh, do I close my short, or switch sides? Well, what's my 'context'? What's my premise behind my trade? I'm playing off of two larger bearish setups, with an even larger timeframe 'context' supporting these patterns. This small bullish pattern has no bullish 'context' in the overall scheme of things. Hence, I'll ignore it. This pattern does not change the premise behind my trade. I see things like this all the time. "Without 'context', you have nothing." Heard that before? Let's see what happened from here (as we all clearly remember). A massive windfall trade was handed to anyone who was in off either of these setups. Using any of the trailing stop/scaled exits methods that I use, the majority of the position would have been held until right before the close. These are the ones that I wait for, and attempt to maximize them to the greatest extent possible. It's curious that at this very same time I was also playing a FOREX trade, the GBP/USD, to the short side, also. That tanked marvelously, playing out much like the ES trade. It's a strange thing to see the dollar going straight up while the market was going straight down, but it makes sense to certain market participants in some odd way, and it was pretty clear that was the way it was going to go. As an aside, I have been working my FX trades in close alignment with my ES trades. I am finding that I can correlate them quite a bit, even down to the lower timeframes. If they disagree it sends a serious red flag up for me. Of course for me to do this, I have to know if they are directly correlating or inversely correlating at that particular time. It's not a guaranteed thing, but it sure is helping my trading by adding it to the mix. The next commentary will be the weekend edition, posted on Sunday. Perhaps I will start the new format then.


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