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 September 29, 2004 Commentary (mid-week
edition)-
Today I am going to stay with the ES theme.
On Tuesday I spotted what I thought was going to be a great setup. It worked
out quite well, bouncing off my grouping to the tick. Although I won't get into
too much detail here, I was using some of the material here from the new book,
Kane Trading on: A Totally New
5-Point Pattern. What I am going to show won't be an example of the new
pattern, but I did use some of the new concepts from that book.
I was
watching the 13-minute chart, and although the larger scale trend was down, I
saw something shaping up. I'm constantly on the lookout for countertrend moves,
if they set up in what I call a 'daytrading context'. In brief, the intraday
trading usually has a 'range' it trades in, and excepting the strong trending
days, I can get a feel for when it is getting near the boundary, and hence may
'bounce' for awhile. I will play a countertrend move on a lower timeframe, if
it happens to give me a setup at the 'boundary' area.
I can't
explain in this short commentary the entire set of conditions and parameters
that I use to judge if I think the issue is at this potential 'bounce' area,
but suffice it to say I have a pretty good set of conditions, and I have
developed these, for my 'Trading Plan', over years and years of hands on
experience. Each trader has to develop these skills for him or herself.
Let's first
take a look at what I was watching at on the 13-minute chart.
I was watching the ES drop below all the
lower swings-lows as it trended down. The trend is rarely smooth on the ES
13-minute chart, and usually trades sideways for several days, and then 'breaks
out', and then goes sideways again. I have pointed this out in this commentary
many times. The ES broke down, and hit the 1.618 external retracement
area.
This, in and of itself, doesn't mean all that much except that a
bounce may be coming. Given that it happened in an area that looked 'just
right' to trap a lot of downside breakout traders added to my interest. But
what really got me was what I saw shaping up on the 3-minute chart at the same
time. Let's take a look at that.
I spotted a very nice 5-point pattern shaping
up. It wasn't any of the 'named' 5-point patterns, but it pointed me to a very
tight grouping, and I really liked the setup. I am more than willing to trade a
5-point pattern that sets up with adequate 'context', gives me a tight grouping
(or groupings), and then gives me an entry trigger, even if it isn't a 'named'
pattern. This was a great example of just that.
Let's take a look at how the ES
reacted off the grouping.
I got several textbook perfect entry
triggers, the best one at 1102.75, followed by another one, using a different
technique, at 1103.00. The ES then moved up to 1109.00 before doing a 3.50
point pullback. Then it started up again. Let's take a look at that.
It appears that the area of the pattern was
quite significant, in the 'context' of the 3-minute chart. There were many
opportunities to play this second trend thrust. These are the type of trading
opportunities that I am constantly on the lookout for.
Let me change
gears now and finish with a chart of GOOG.
Yes, GOOG decided to once again get going. I
still have not been triggered out of the small remaining position on this one.
I was giving serious thought to adding back on to this if I got a trigger on
Tuesday morning, but the large gap up made it too hard for me. It blew past the
trigger, and although in some circumstances I can find a way in on a shallow
pullback, I wasn't willing to consider that type of an entry in this case. I
had to just stick with my small remaining play. This stock reminds me of the
'good old days' back in the late 90's.
Lastly, I'm keeping a close eye on gold, as
it's moving towards my potential trade area. I will redo a part of the
groupings, to reflect the new data, as it gets closer to the PTA (assuming it
does get closer). There are some very interesting things coming together
with this one, and it's been a long wait for me. That's the way it is with this
style of trading.
The next commentary will be the weekend edition, posted by Sunday
evening.
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