Kane Trading - Education for Serious Traders

					May 9, 2004 Commentary (weekend edition)- For this weekend's commentary I am going to go over some of my trading thoughts from the second half of this past week. I will focus on some of what I was doing on Friday, using what I had been observing prior to that. In a sense this will be 'a day in the life' of a trader, using the methodologies. I like to show, as best as is possible in such a small and limited column as this, what it's like 'in the trenches', using the techniques. Far too many people, I feel, try to show trading in a manner very far from what it is actually like, as a business. They show it as this glamorous make a million a minute activity that you can do in a few minutes a day with some mechanical set of rules. I see it, as you all know so well, as a grind that takes many years to master, and can't be 'coded' because only the human brain can adapt and react to the ever changing conditions in the market. I liken it to being a surgeon. It takes many, many years of hard work to become proficient, and then the surgeon must keep up with the ever-changing technology and such. I think that anyone who thinks being successful in this business is 'easier' than being a surgeon, or should take less time, is deluded and in for a surprise. That's why I say, as a 'slogan' for this website 'For those that want to do the work'. If you really feel that this is all hogwash, and that there are 'easy' ways to master this profession, this website is not for you. All I can say is: go explore the single pointed, "we have the best setups" websites and products, and when that doesn't get it done for you, if you want to do the work, come back here. Now, why bring this all up now? Because I am going to 'talk out loud' today, and show some of what I was thinking as I made trading decisions on Friday. There will be nothing 'impressive' here. I am not selecting out my 'big winners' and attempting to create an illusion of wild success. I try, as best as I can, to show what it looks like trying to make money, grinding it out 'in the trenches'. Other than catching the occasional big winner, it generally looks boring and wholly unimpressive most of the time. If it didn't, that would alert me that something is up. Watch the World Poker Tour, something regular readers know I frequently compare to trading. There are some exciting pots here and there, but mostly it's just standing around, checking and folding. It's not constant excitement. If I want excitement, I turn to my hobbies. I never, ever seek my excitement from trading. I can't think straight, or react intelligently, when I'm pumped full of adrenaline. Let's take a look at some of my mini playing, as it shaped up for me Friday. For that, I need to go back to the action from Wednesday and Thursday, and before. Understand that I was also watching the entire layout, the 'context', from way before the last few days, too. For these examples, though, I will mostly just focus on a few things that I was using from the last few days to guide my trading premises. Let's start with a 60-minute chart, to show some of the overall layout as we headed into Wednesday. This chart was telling me that we are in a downtrend at this point on the 60-minute timeframe. This is countertrend to the much larger daily/weekly uptrend, but still playable for me. On this chart I see that the ES is 'correcting' and 'pulling back'. Unless I feel that this countertrend rally is over and the ES is going to be starting back up, this has me looking for opportunities on the short side. I also noticed something here that I wanted to look at more closely on the 13-minute chart. Let's take a look at that. I drew in a rather interesting trendline. I felt that this line really captured the essence of the 'pullback'. The arrows indicate where the trendline is anchored. I took the late day sell-off from April 30 as an 'outlier', and ignored it. When I anchored the trendline I wasn't sure if it was going to be of any use to me. I wanted to watch and see. When the ES bounced right off the line before the fed announcement I took notice. When they sold it after the fed announcement and it bounced very hard off the line a second time, I was ready to use the line as part of my trading process. These two spots are quite clear on this chart, to the right of the second arrow. This line was going to help me decide when the downtrend had resumed. Let's look at the open on Thursday, on a 3-minute chart. The ES opened right at that trendline, and then pulled above it, forming a classic ABCD pattern, set up to continue a downtrend. What downtrend? At this point I felt that this was the first shot, albeit perhaps an early shot, at the resumption of the downtrend on the 60-minute chart. If this trendline gave way, the move might be substantial. I had a great setup to get me in, and I felt this was worth a shot. Let's see how this played out. The ES dropped like a rock off one of my favorite setups, right out of Kane Trading on: Trading ABCD Patterns. But this is not what I want to show. This is all preliminary background information for Friday's trading. The ES rallied from here, and then had a wild start on Friday. Let's look at how that shaped up, and what I was looking at just after an hour into the trading day. The ES opened down big and then ran straight up, right to the underside of that same trendline. It then dropped wildly, and then started up again, forming a beautiful ABCD pattern, again set up to continue the downtrend, which it was now clear to me was fully in place. This could also be considered a potential 5-point pattern, using that high that tested the underside of the trendline. Using my usual methods for evaluation, the B point of this potential 5-point pattern was well shy of a .618 retracement. This has me looking to build my groupings around the .886 retracement. So why didn't I do that? Why would I be looking at the ABCD pattern here, and not the 5-point pattern up higher? It's not because this is a well chosen, after the fact example. If you aren't convinced of that you should have taken me up on the free trial to the live chat room, where I frequently make posts of this sort live, in real-time, with my reasoning. My thoughts here were the wild swings invalidated the 'context' of the 5-point pattern. I just didn't like how it looked. I felt that the ABCD pattern was a much better choice for a trade premise for me. I could always take a shot up higher if it did manage to get there. But if I passed this ABCD setup waiting for a higher completion point, I would be left out if this were the area. I felt, for my trading, this area was worth a shot. As an exercise, just look at the chart, focusing on the swing-highs, starting from the top left. If this were now back in a downtrend, it just would be out of 'proportion' for the rise to go to the .886 area. This is where the chart looks like it should roll over. Give me a pattern and an entry trigger, and I'm taking my shot. Discretionary trading based on the techniques and experience. Let's see how this played out. Since we are rapidly running out of space and time, I will advance the chart quite a bit, and we'll finish our discussion with the final chart, showing the punch lines ahead of time. This trade opportunity played out, but not spectacularly. It was a typical 'hitting a single' trade. This is the most common result, in my opinion. But then it got better. Once the ABCD played out, I drew in another trendline like the last one. I ignored the overreaction that tested the old trendline from below. The ES went right to this new trendline from below. This is shown with the first arrow. With all the 'sideways' action I wasn't all that convinced that further downside was going to come to pass that day, but I saw a 'trendline squeeze' setup just screaming at me to take a shot. (There is also another thing here that I was looking at, but I can only post so many charts. Go to a 1-minute chart and try to set up an Andrews pitchfork. I may post what I saw in the next commentary.) My assumption was that the trend was down until proven otherwise. Just because I was wondering out loud if the downtrend would continue doesn't mean that I'll pass a setup as awesome as this one. I could take a shot and have a very close stop out point, yet still technically based. In more plain language, I felt that it had to roll at this trendline. My stop could be just above the line. Now, there are more things in my analysis than I can show in this small (but getting larger as I go on here) commentary. For example, I felt that this was a 'test' of the ABCD pattern that we just looked at. Do a .618 retracement off that ABCD pattern reversal point, and see where that lands. The ES turned at that point, right to the tick. This area was a key area for many reasons. This one played out big. Some do, and that's what I keep taking shots for, to be in when it really moves. Now notice after the flush, the ES set up yet another ABCD pattern, set up to continue the downtrend. At this point the ES had really dropped and further downside seemed unlikely. Yet the weakness was so pervasive I felt another shot was warranted. I'll leave it to the reader to see what happened from here. For my trading, it was another 'single'. I've tried to show some of what goes on in my analysis as the market unfolds. I am watching for the patterns and trends, and looking for areas to enter where I can have a tight, technically placed stop. All of this is outlined, in detail, in my books. Then I just grind it out, day after day, doing just about what I have shown here. I get some stop outs, I get some singles, and I catch the occasional home run. It's not glamorous, but it's trading as it is 'in the trenches', not as it is in the magazine ads. The next commentary will be the mid-week edition, which will be posted on Wednesday.


	NOTE: Reading this page or any page on the Kane Trading website, or utilizing this website and any material contained herein in any way, shall constitute an acknowledgement that you have read, understood and agreed to all the disclaimers, terms & conditions, and policies of this site.

	This website is best viewed with MSIE 6.0, text size set to medium, and screen resolution set to 1024 by 768. Copyright © 2004 Kane Trading. All rights reserved.