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 May 19, 2004 Commentary
(mid-week edition)-
Today I'm going to review corn and
wheat, and then look at something in today's ES mini. I'll start with wheat, on
a 15-minute chart. Keep in mind that the 'traded timeframe' is the daily. I'll
show the 15-minute charts on the grains here because I'm using entries from
A Pattern Trade Entry
Technique, and also to show the detail, since these plays are just
getting started.
I've shown the 1.000 price projection of the
large ABCD pattern, to show the area I was watching most closely. Of course, as
I mentioned before, I have entire groupings put together on my 'working'
charts. As I explain in my books, I never trade 'one number'. The arrow shows
the approximate area where I got an entry trigger. Now I'm in the management
phase. The 15-minute chart is way too fine for management, so I'm back up on
the higher timeframes to set up my trailing stops/scaled exits
strategies.
Let's look at corn.
A very similar setup unfolded here, and I
received an entry trigger on the same bar, time-wise, as I got with wheat.
Hmmmm. I've shown the 1.000 price projection just like I did with wheat. I also
put an arrow on the chart pointing to the approximate area where I got my entry
trigger.
I had to take what looks like some pretty good heat after entry on
this one. That's something that frequently happens when I take a trendline
violation entry without waiting for a significant pullback. If I wait, I
frequently don't get any shot at all. Given that this is a full two timeframes
down from the 'traded timeframe', what looks like a lot of heat, and what looks
like an entry far from a potential technically significant stop, is in fact not
a lot of distance at all, for my 'Trading Plan'. Take a look at this on the
daily timeframe and you'll get an entirely new perspective.
I'm getting a
nice start to these plays, but I'm not all that convinced they aren't going to
roll over. I don't trade off that feeling, I'm just mentioning that this is
playing out just too 'perfect', and that has me on alert. I've got my
management plan in place, and now I just sit back and let it play out in
whatever manner it does.
I'll finish with a play in the ES from today. I want to
point this one out for the management aspects it shows. I was looking, as I
usually do, for trades on the 3-minute chart of the ES. I took two shots at
shorting in the afternoon. Let's look at the chart.
The arrows mark where I 'took my shots'. The
first play started okay, and then came back and I scratched it. Looking at the
chart now, I could have held it. Maybe I was just a fraction too 'jumpy'. But
I'd rather try to re-enter than take a lot of heat in the beginning. That's
just my style. I was also concerned about a possible bullish ABCD pattern,
albeit a very stretched out one.
The second arrow re-entry spot
really paid off. My point here, though, isn't to show what a 'great' play this
was. It's to point out what my management plan had me doing with it. This was
discussed live in the chat room. I frequently get asked about how I manage
certain plays. I usually respond by saying it's in Trailing Stops. I think what I have
laid out in that book is invaluable, yet it seems very hard for people to
utilize. Many people are just so engrained with the idea of a 'profit target'
that they simply can't even visualize the idea of letting a play run, and
letting the market tell them when to exit.
Let's look at this ES play. I
mentioned in the chat room, as a simple exercise to 'get the ball rolling', to
drop down to a 1-minute ES chart, and put a 30-period moving average on the
chart. Look at what that tells you about the trend. Let's see what that looked
like. (Note that the moving average had nothing to do whatsoever with my entry,
and was put on the chart only after the trend began to take shape.)
The arrow points to the approximate area of
my second entry trigger. I mentioned to watch for closes above the average.
There were none. This simple technique would have kept a trader in this play
until the close. There were many people taking profits all the way
down.
Now granted, my trailing stops/scaled exits management plan is not
this simple. I use several things together, and combine that with my
experience, to come up with my own specific plan, individualized to each market
and set of prevailing conditions. But the techniques that I draw from are all
laid out, in great detail, in Trailing Stops. Each trader has to
look this material over and decide how to use it (if at all), and how to blend
it into his or her 'Trading Plan'. The book is filled with a plethora of
various techniques, designed for the many different situations that I have come
upon over the years.
It never ceases to amaze me the endless focus so many
traders have on the 'potential trade area', to the exclusion of all the other
aspects of a complete 'Trading Plan'. I've been told many times that it is
fascinating to watch me 'milk' a trend. When asked how I do such management I
ask them if they have read that copy of Trailing Stops I sent them. And the
crazy part about it is that sometimes I get a no, and sometimes I get a yes.
But regardless of which answer I get, I'm only surprised I get the question! I
wrote the book to answer the very question, and people stand there, holding the
book asking me how I do that!
The next commentary will be the weekend
edition, posted on Sunday.
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