Kane Trading - Education for Serious Traders

					August 18, 2004 Commentary (mid-week edition)- An interesting thing happened today, and it was easy for me to decide that I wanted to discuss it in today's commentary. Yes, it was in the ES, but trust me, it's worth following along anyways (for you non-ES traders). I was watching for my usual setups today, and had been pretty happy with the morning action, for my style of trading. Then I saw the ES approach something I had been watching for. Let's look at a 60-minute chart to see what it was. The ES was approaching a very obvious downtrend line. Not only that, but at that very instant, the NQ and the SOX index were doing the very exact same thing. Rarely have I seen this, with multiple indexes hitting similar lines at the same instant. Combine this with two other things: the 'oversold' condition of the market, and the greatest amount of block trades I can recall seeing on the ES going off at the ask. It was just incessant, it seemed. I watched very closely. I decided very quickly what I thought was going to happen. I decided to scrap all my existing plans. I called my thoughts live in the chat room as this unfolded. I saw the ES approach the line, and drop off. It turned at less than a tick from the line. I expected a big drop, since everyone was likely selling short right there. But the drop off was minimal, and the blocks were still coming in strong at the ask. The ES settled into a slightly uptrending regression channel. It held the bottom of the channel, but barely. They even tried to shake it under with a sell program, which they did for a fleet moment. When it didn't give way, I knew the time was near. It ran hard up to the line, and pulled back. I've seen this before (recall the XOI example from awhile back, on April 7, 2004 and July 18, 2004). Let's look at a 3-minute chart. It was on the launch pad. There were so many stops over those lines it was irresistible. The blocks at the ask just kept coming. I dropped down to a 1-minute chart to choose my entry. Let's take a look down on that chart. The arrow points to the bar that triggered me in once the pullback was over. It hung around for a little bit, and then it was over. They hit it, the stops got triggered, and it was gone. I was in well before that. Let's see what happened from there. The first arrow points to the area of my first entry. Since I was thinking this might just be a stop run, I was aggressive in my scaling out. The second arrow points to my next shot. The blocks just kept coming, and I had to take another shot at it. So, what has this shown us? First, it showed that there are times when buying at resistance is acceptable within my 'Trading Plan', as long as there is 'context' for it. And there sure was here (again, review that XOI example). And second, just like news can override just about anything and move price, so can big buying. I gave up my usual setups. I could see what was happening. The blocks were there, and the sucker setups were too good to pass up for the big players. The 'sell every bounce' crowd was too eager. The setup was too obvious, and the block trades too significant. I went into 'going with the flow' mode. As I've said many times before, I feel that one of my strong points as a primarily Fibonacci trader is that I can, and do, trade other methods. I'm not stuck to one style, no matter what. This was a great opportunity, and my varied experience and market reading ability brought it right to me, and allowed me to play it. And as I said, I called it blow by blow live in the chat room. If you haven't requested your free trial, please do. Scott doesn't ask for any credit cards, info, or anything, so you have nothing to risk. You can just stop by and watch. The next commentary will be the weekend edition, where I'll try to discuss something other than the ES. It should be posted by Sunday.


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