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 October
10, 2004 Commentary (weekend edition)-
Today I'm
going to do some of my famous ramblings (since it seems that a fair number of
my readers enjoy this), and then we'll look at some charts. Unless I have
faulty data, I'm finding my website traffic has fallen off quite a bit lately.
My 'e-mail indicator' seems broken, since I'm getting almost no e-mail. I
actually tapped my e-mail box to make sure it was working.
I recently
received a letter from a major broker who specializes in online complex option
strategies. This is a broker that I was very impressed with for such
transactions. The letter said that they have just been bought out by a major
'cater to the masses' broker (whose name I will not mention). I then picked up
one of the larger trading magazines, only to find out that NQLX has decided to
drop single stock futures with the December expiry.
Remember when
SSF's were supposed to be the hottest thing to hit trading in the history of
the world? New books were quickly written, magazines came out, Internet columns
revamped to deal almost exclusively with them, and so on. I guess launching
something like this in a post-bubble era is just not too likely to succeed. Now
we have no SSF's from the NQLX, we have program trading at just under 60%, and
an economy that they keep saying is essentially totally unaffected by oil at
over $53 a barrel.
Well, I can tell you one thing I know as a 100% positive
fact. I live way out in the 'country', and it's killing me. I stay home now as
much as possible. It's not a matter of if I could afford to drive the
way I used to, it's a matter of my unwillingness to pay what I consider a
ridiculous amount of money every time I stop at the gas station. I'd rather
just stay home and find things to do there. But if I'm at home, I'm sure not
out spending money…
Here's my point. I suspect that many traders are very
frustrated with the market action. In my opinion, this is the worst market
action I have ever seen. It's not easy trading, by any stretch. I feel that by
improving your 'Trading Plan' you will do better than if you just keep doing
the same thing. I still think my books are a good investment in one's trading
education.
But I look at it like this. Trading can be a lot like
farming. There are times when everything is seemingly perfect. The weather is
great, the soil conditions are great, there are few insect pests, and the
farmer gets a bumper crop, perhaps several years running. Everyone is fat and
happy, and expects it to last forever. This may be analogous to the bubble
market of the 90's. But then there are tougher years.
A prolonged
drought hits, the soil is overworked, insect pests are incessant, and the yield
is much lower. Sometimes entire crops are lost. Without trying to sound
callous, such is farming. Not all farmers can or will ride it out. No matter
how hard the farmer tries, he is not going to get a bumper crop under those
conditions. He may, though, increase his yield somewhat by doing all that he
can. He tries to ride it out until better times arrive.
I liken this
to the trading environment now. It is no doubt very tough. It is made tougher,
mentally, by constantly comparing it to one of the biggest booms in history. I
just want to say that I feel all businesses have tough times, and if one makes
it through times like this, when the better times come, the skills learned now
should be very solid and strong for the easier times.
Each trader
has to form his or her own business plan, and make whatever projections about
the future that seem sensible to him or her. I can only acknowledge that I feel
these are very tough times for this business. It's not going to make me abandon
the business; it is only going to make me set realistic expectations, as I wait
for better times.
This is not something that most (perhaps any) vendors will say out
loud. In fact, I'm sure that a few vendors that read this column are cursing me
now, saying why doesn't he just shut up, and stop calling them as he sees them!
Sorry, that's not my style. Times are tough, but in my opinion I don't think
they are impossible, so I see no reason not to 'hang in there' and keep
studying. And I'll keep teaching (when I'm not trading, of course).
Let's move on, and start with a
gold chart.
Gold has finally hit the lower grouping,
after all this time. It exceeded the grouping slightly though, on a pop up on
the jobs report. It did not trigger any of the entry triggers that I am
watching. I will continue to follow this one closely, and see how it behaves. I
am also watching the behavior for a potential 'blow out' of the groupings, and
any possible trades with regard to that. For me, it's all about the price
action now.
As an aside, notice how the price action has trended along a very
straight line all the way into the potential trade area? Pull up a 60-minute
chart (or the like) and throw on a regression channel, or just a regression
line. It's quite interesting. Recall the comments that I made in A Pattern Trade Entry Technique
about what you see.
Let's follow up on GOOG next.
GOOG is still going, and to the point where
it has moved so much I can barely show it all on 60-minute chart any more. I've
added a 34-period simple moving average to the chart, to show how this thing is
still not implying to me that the run is over. The average was only crossed on
a closing basis in that one spot, which is where I did the last of my scaling
out. I was triggered out of all but a small fraction that I opted to hold at
that point.
I am not showing this average to imply that it is the method that I
used in my trailing stop/scaled exits plan (what I do is clearly laid out in
Kane Trading on: Trailing
Stops), but more as a guideline to show how GOOG isn't giving a lot in
terms of signals yet for the run being over. It may be over as I write
this, but it just hasn't told me so at this point, so I'll stay with
it.
Let's finish with an interesting setup in the ES that I spied
shortly after the open on Friday. This one worked out quite well. It sure would
be nice if they all work out this way.
The ES was forming a nice ABCD pattern, set up to continue
the downtrend. It also had some nice time factors coming together, although the
chart is squeezed together quite a bit for what I did to show up very clearly.
The entire grouping is only about one tick wide. Take a look at the 3-minute
chart of the ES at this time to see how it looked in that 'context', as well as
the 13-minute chart.
Let's see how this played out.
The ES came right off the grouping, right at
the time area that I was watching. It signaled entry by several of the
techniques I commonly use, and gave an initial thrust. It then came back and
'tested' the area (an .886 retracement to the tick), and then really dropped
off. This one was a 'home run' all the way.
Another
interesting thing that I had on my chart was a trendline from the starting
point of the ABCD pattern, next anchored at the C point of the pattern, with
the dip in between penetrating the trendline slightly. I felt this line
represented the price action the best. Draw this one your chart, and notice the
behavior of the 'test' at that .886 retracement. This one behaved marvelously
for my style of trading. The run off the grouping was almost tailor made for my
trailing stop/scaled exits management plan.
The next
commentary will be the mid-week edition, posted by Wednesday evening.
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