Kane Trading - Education for Serious Traders

					July 21, 2004 Commentary (mid-week edition)- Today I'm going to talk about an interesting thought I had recently, and then get on to a few charts. Before all that, though, I'd like to discuss an offer that Scott Carney over at Harmonic Trader has made for my potential buyers. Scott has graciously said that he would give a free two-week trial of his Harmonic Analyzer software to anyone who buys one or more books from me in the next two weeks. This is amazing software that scans for patterns. It can scan a huge number of issues and list out the matches. The user can set the parameters of the search to suit what they want to look for. Any result from the search can then be quickly displayed on a chart, showing where all the numbers are. He has it set up to do stocks, futures, and FOREX. He has been posting a lot of FX charts lately using the software, and it has found some amazing patterns. You might want to check this out if it sounds like something that can help save you time, and find you potential trading opportunities. I think it is truly amazing software. I haven't seen any other programs even remotely close to this one as far as pattern matching algorithms. Understand, though, that this free trial offer is between you and Scott. If you make a book purchase from me and want to take advantage of this offer, let me know when you order and I'll simply forward your name along to Scott. Any use of the software, and any transactions that follow that use, would be between you and Scott. I won't be involved in that at all. All I'm doing is just mentioning that Scott has offered this free trial to my buyers. He wants to make sure that those who try the software are at least serious about this type of trading methodology, and traders who buy my books are likely candidates to have an interest in this type of software. I also need to mention (I have such a pesky attorney, who makes me do all sorts of things I don't like to do) that I can't make any guarantees for someone else, in the sense that if you buy a book I am not making any assertions about the free trial or anything of the sort. I don't anticipate any problems or issues with that, but it must be made clear that all I am doing here is pointing out that Scott has made this generous offer. What follows after that is between you and him. If somehow you don't get the free trial (say you have an archaic, stone-aged computer that it can't run on, or whatever else that could come up), I make no claims that I will give you part of your money back for the book purchase, or anything of that sort. Sorry to go on and on about this, but Scott and I own separate companies, and although we do a lot of work together I need it to be clear that I have no financial interest in the Harmonic Analyzer, and I'm not the one making the offer. Okay, my attorney is happy, Scott probably isn't (he's probably cursing me out right now and wondering why he ever even made the offer!), and we can move on to some trading ideas. I was thinking about timing in trading. Generally, I have an idea about timing in my trades. I try to feel the rhythm of the market, and make sure my trade setups make sense in this 'context' (yet one more way to look at 'context'). It's hard to describe in words what I mean here, but anyone reading this who has paid their dues and has the 'screen time' knows exactly what I mean. As I thought about various aspects of timing, I got to thinking about a different kind of timing. This has come up for me lately because of my greatly increased attention on the FX markets. I am spending a lot more time in front of the screen than ever before. I now 'stay up late', and have even flirted with shifting to some all-nighters if the action is good. I probably won't do that, but I can see why it might be the best time for actual trading action. Now, here's what I have noticed. My timeframe for FX trades is a lot longer than for my mini trading. It's probably about half-way between the 'intraday swing trading' in the mini and some of the stock or futures 'swing' trades that I post in here that last several days or slightly longer. So, it usually plays out with me anticipating possible setups that may be forming, as I try to do in this commentary with various issues. As a setup comes together, I'm watching on the lower timeframe (the entry timeframe) for my entry trigger. Here's the problem. This may happen anywhere over the course of several hours, or it may happen at night when I'm asleep. Now, you might be saying 'So what if it takes hours, just wait it out, you've got to pay your dues.' True, but what if it falls apart after the two hours and doesn't trigger? Then you wait again for the next setup and so on, until you get a play. Well, I can't watch that long. I have to use the restroom, make lunch or dinner, answer the door, and so on. I have found that when I do this I sometimes miss a sudden move right to the area followed by an entry trigger. When I thought I might have time, I found it was over when I got back. Sometimes I wait for endless hours and I miss it. I just can't stay glued to the screen all day and all night. I recall a setup where I waited from after dinner until about midnight for it to come together, and I couldn't stay awake any longer, having got up before the stock market opened at 6:30 AM my time. I finally gave up and retired. I put an 'x' on the chart right where I quit. I checked the next morning to find it set up and triggered exactly as hoped shortly after I quit, and gave a whopping nice move. I wasn't in, though. My timing wasn't there. I know what some traders are thinking, and that is to have used an order to get me into the trade once it hit the area. If you have read all my books you already know why I can't do that. I don't trade by 'fading' in once the potential trade area is hit. I enter trades when my lower timeframe entry trigger puts me in. And that doesn't happen at a certain number. It happens when certain things come together. I have to be there to read that, and make my evaluation. Sure, that's a disadvantage, but the advantages, as I've explained in this commentary and in the books, clearly outweigh the disadvantages, for me. I'm a discretionary trader, and I need to see how the market is acting. So, I've discovered that I have to figure out ways to monitor several FX pairs as efficiently as I can, to optimize my ability to be in place when the setups trigger. I know what the main hours I want to be watching are, but it's hard to time when I'm at the screen so I don't miss them. I can't watch that many hours non-stop, and besides, I am trying to trade the mini and other things, too. It's all about the timing. It's just that it's a different kind of timing. Nonetheless, it's timing that can greatly add to, or reduce, one's bottom line, and hence it is an area that I'm trying to improve on. Let's move on to a couple of charts. I'm going to discuss what has happened with gold since I originally pointed that one out, and what I was watching there. I'll start with a 155-minute chart. I chose this timeframe because I'm having some data problems with the daily and can't get a good chart together at this time. My setup also won't let me do a chart for the full number of minutes in a regular trading day, so I couldn't show that. Hence, I arrived at the 155-minute, in an attempt to have an even number of minutes per bar. I was looking at a short play off the ABCD pattern. The pattern symmetry looked really good to me, and it came within a fraction of the 1.000 price projection. As you can see, gold has had a pretty good response off that area. Now, was entry somewhat tricky? That depended on the entry technique chosen, in my opinion. On the lower timeframes there were entries. But what if you didn't get in? What else happened that really jumped off the chart? Let's look at a 40-minute chart. The arrow points to the area of the pattern completion. Look at what set up after the initial drop. A 5-point pattern formed, set up to 'test' the larger ABCD pattern completion point. I put the .786 XA retracement, the 1.000 price projection, and the 1.128 BC external retracement on the chart, to show the area that I was watching. This is a fantastic looking pattern. There was adequate chance for entry using the techniques I lay out. The response has been strong since then. I have no idea if this is done now, or just getting started. I'm in the management phase, with trailing stops and scaled exits in place. This is a quintessential example of the process. I showed the potential pattern setup in advance, discussed what I was looking for, all the while mentioning that the pattern may never complete, or if it appears to, it may 'blow out' the potential trade area, and hence I'm waiting for an entry trigger. You can see what has transpired since then. The second pattern test was just a classic 'gift' for me. This example really outlines how the process unfolds. And it should be noted that it's hard to give the full level of detail of all that happens with such trades in this short column, but the outline should be enough to grasp the general ideas. As an aside, was today's ES/NQ action something, or what? The next commentary will be the weekend edition, posted on Sunday .


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