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 October
13, 2004 Commentary (mid-week edition)-
Well, there's
little doubt about what I'll be talking about today. It's always a dilemma in a
column like this because I can only show a few things, and if I happen to pick
things that don't set up, it 'makes me look bad', in a sense. People are
impressed by results, and as those that follow me closely know, I can't 'call the market' like the 'gurus'
can, nor do I try. That's not been a problem in this commentary so far, though,
because I have real been hitting them in here real good.
The last
setup I showed was the GOOG play, which has just been phenomenal. I also have
been watching gold, and updating that one frequently. I was really hoping it
would pan out, because we have spent so much time in here on it. From a trading
perspective it makes little difference to me if it panned out or not, since I'm
watching a very large assortment of potential setups at any given time, and I
know from a percentage standpoint only a small amount will trigger me into a
trade.
That's all part of the way it works, and it's not a problem because
there are enough setups that do go to keep me busy. On the other hand, I have
no way of knowing far in advance which ones may trigger, but I have to pick
some to discuss in this commentary regardless. If I show a lot of setups and
spend a lot of time, and they just don't complete, I can't get the full
educational value from them. So, I was really hoping gold would react to the
potential trade area so the merits of my methodology would be clear, posted
way, way in advance.
I got my wish on this one, and it turned out to be
classic to the nth degree. Gold went to the first potential trade area and gave
me a trigger setup that I dream about. It was just incredible. Let's drop down
to a 5-minute chart so that I can show the details of what I saw shaping
up.
Before I even discuss this let me be clear
that the traded timeframe for this trade is the daily chart, so I generally
would be looking at a 60-minute chart or perhaps a 45-minute chart for my entry
timeframe. I am usually watching lower timeframes than my entry timeframe, but
I don't typically use them for entry triggers.
I first spotted this shaping up on
the 15-minute chart, which I do use in a few cases with a daily traded
timeframe, such as the 'Cool Trick' entry from Kane Trading on: Entry Techniques,
and in A Pattern Trade Entry
Technique. In the case where I see something this beautiful shaping up
on the lower timeframe, I will use it even though it's outside of my more
typical guidelines. In this case I have shown it on the 5-minute chart only to
make it clear to the reader.
With all that said, gold hit the lower grouping, which I
have shown the approximate bounds for with the two horizontal lines. I
particularly liked how strongly it rushed into the potential trade area,
because I felt that it might scare a lot of traders away. Gold then formed this
beautiful 5-point pattern, and started to drift down. I particularly like
patterns set up to trigger entry into larger patterns. This one was classic.
When it started to roll over I decided to initiate one-half of my intended
position.
Let's move ahead, and we see what I did from there.
Gold continued down, and gave two really nice
swing-low violation triggers. I highlighted the trigger spots with the two
arrows. I added the rest of my position at the arrow on the right. Keep in
mind, this is a 5-minute chart and the traded timeframe is the daily, so
everything looks a lot more dramatic in this close up view than it is in the
appropriate 'context'.
I'll show how this went from here, on a 15-minute
chart.
The arrows show the approximate areas of my
two entries. Nothing much happened for the rest of Monday. The aftermarket data
showed what was happening, though, as it started to sell off strongly. This
futures chart shows a big gap down, but it was clear way before the open how
this was going to go. This has just been fantastic so far. More than I could
ask for. I started some scaling out, and my stop is now moved down.
I will be trying to ride at least
some of the remaining trade for a longer move, and I'm willing to give back to
try to do that. Once this is viewed back on the daily traded timeframe it is
clear that although this is a solid move, it is small in the daily 'context'.
Let me finish with a look at that.
No doubt a solid move right off the pattern,
but it might just be getting started. Now I just let the remaining ride, in
management mode. I have my plan laid out, and I'll see how it goes. Regardless,
barring a market shock event I'm in a strong position here, with profits off
the table and my stop moved down. Perhaps we've seen it all with this down
move, but I have no idea if that's the case or not, nor do I need to know. I
have a plan, and I just let it unfold.
Before we quit, that GOOG play is just
unbelievable. I'm still holding what I have in that one, and it's still going
up. I'm planning on just following my management plan on that one and staying
with it until it tells me to get out.
Lastly, I am plugging away on Trade Management, and for the first
time I feel I may actually get it done at some point. So far it is turning out
better than I had expected it would. I think it will really round out the book
series, and as I have said many times, it will likely be my last book for quite
a while.
The next commentary will be the weekend edition, posted by Sunday
evening.
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