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 October
2, 2005 Commentary (weekend edition)-
That was
interesting. What did you conclude? How many people e-mailed me links from last
week's exercise? Ready for the answer? Zero. Just as I suspected. I didn't get
one single e-mail response pointing out how I missed this or that website out
there, and I should check out so and so. Here's my surprised look. What? You
say my expression didn't change at all? You could have anticipated
that.
None of this reflects arrogance on my part. I'm not saying I'm
great, my work is great, or that I'm better than anyone else. I'm merely
stating what I think is obvious fact: I have done an immense amount of work,
via my book series, to make my unique methodology available from an educational
standpoint, and an immense amount of work to support that with the website and
additional programs.
I've done it without a lot of 'hype', and with zero paid
advertising, either to get people to the website, or within the website (did
you notice I have no ads of any kind on this website?). I haven't seen anything
like that anywhere else, and I asked the readers if they had, and by their
silence they told me they hadn't either.
Recently I saw a post about me on
one of the most highly regarded (and strictly non-commercial) forums, by a
trader I have great respect for (and who is highly respected at the forum), and
he said: 'Personally, I have come to see that Jim is one of the best trading
minds out there and a very generous soul as well…' This was after a link
to a commentary of mine was posted in response to a question someone had about
program trading.
The point is that many very experienced and respected traders who
have studied my work have come to see the merit and value in what I have shown.
To me, that's the real confirmation of what I have put together: experienced,
respected traders saying it was useful to them. My 'target audience' is the
very serious, willing to work hard trader, whether already experienced, or just
wanting to reach that level. When those people tell me they appreciate my work,
all the effort I have put out seems to me like it has been worthwhile.
Let's move on
to some chartwork. I'm going to review the chart I posted last weekend as Jim's
Chart of the Week. I want to try to clarify the difference between a 'setup'
and an 'action spot'. A setup is something that meets all of my filtering tests
and so far remains a candidate for a possible trade after that. I say a
candidate because I still have to watch price action as the area is approached,
weigh in current market dynamics, and see if I get an entry trigger. This is
discretionary, along the guidelines of my 'Trading Plan', as laid out in the
books.
'Context' plays a big role in this assessment. It tells me, among
other things, if the setup is with the trend. I have found, and I frequently
say, that setups are easy to find, and there are plenty of them. Now, setups
that make it through all my filters, they are, of course, fewer in number. One
of the first things I hear back from many new book set buyers, especially once
they have been in the members' section, is how this and that trade they took
that didn't play out as expected would have been filtered right out using my
methodology.
Any setup I have that doesn't necessarily qualify as a potential
trade for me is still an 'action spot'. I still want to see what happens there,
as it will give me clues to what may be happening, to what the market is
'thinking'. I want to see if my spot is 'seen' by the price action. I use this
information for making assessments. I also 'fade' certain setups that didn't
meet my filtering aspects. If I see a setup, and I suspect a reaction will
occur, but I also think the 'context' points to the area not holding, I may
want to trade against the setup.
By this I don't mean do the
opposite as soon as the area is hit. I mean watch the reaction, see if I get a
setup to fade it, and then take the trade when triggered. I need reactions at
areas I expect reactions at to position myself for an entry. That's what is
important to me: proper positioning. I need the stop to be close, but
technically significant. Anyone can set a stop anywhere they want. I need close
but significant. That's not something that can be done anytime, anywhere. It
can be done only in limited, specific places.
I don't have the time in here to go
into more detail so I'll leave it at this, but suffice it to say that I am
spending a lot more time looking at 'action spots' than I am at setups I would
consider trading 'straight up'. This is hard to show in a venue like this, but
somewhat easy in a mentorship situation, for example. If I sit down with
someone and show charts and explain my reasoning, it usually becomes quite
clear what I am trying to do.
Let's look at last week's chart, and maybe I
can demonstrate this a little.
I wanted to show the next approach to the
line as a critical spot that I wanted to observe. The ML lower // produced a
reaction, but it didn't make it up to the ML. I don't do a lot of 'traditional'
ML analysis, as I have my own way to use the sets, in conjunction with my usual
methodology. (I cover this in detail in Kane Trading on: Median Line and
Fibonacci Synergy.) Hence, I won't go into how this rollover shy of the
ML is a sign of weakness, and what the likely outcome will be, etc. I just want
to see how the price action acts at the // if it goes there.
I already
have my 'context' and layout, and I know what I am watching for. This area will
give me useful clues, and perhaps a shorter-term potential trade on a lower
timeframe. By pointing out this area I was not implying that I planned to
simply get long there, and I hope no one assumed that. This was an 'action
spot', an area that would tell me something.
Let's see where we stand
now.
The ZN gaps down, which right away tells me
the likelihood of a bullish reaction has dropped significantly. Based on my
'context' and the ML layout, this was to be expected. A significant 'action
spot' was gapped through. Now my thoughts turn towards a 'test' from below for
a possible short. If this spot didn't produce a reaction from above, it may
produce a reaction for me from below.
Let's go to a 15-minute chart, and then I'll
follow up with some 'context' back on the daily timeframe.
The larger arrow shows the position as I
posted the chart, as the price was approaching the area. The differences you
see from the daily chart, with respect to the line and the open, have to do
with the regular trading hours shown here, and the entire trading sessions,
regular plus pre and post regular, covered by the daily bars. The open on
Sunday night was still above the line.
Take a look at how this gapped below the
line, and then went up and 'tested' the line from below multiple times before
fading off. There is nothing on this chart that would even hint at me looking
at this from the long side, regardless of 'context' or anything else. If I were
thinking long, this price action would have me standing aside. If I were
thinking short, this action gave me some great opportunities.
It should be
as clear as a bell just how significant this was as an 'action spot'. Price
definitely 'saw' the area in my opinion, and it allowed me to set up some great
shorting opportunities. This was indeed an 'action spot', just as I thought it
would be. That's why I pointed it out. Not every spot I look at as a potential
'action spot' is 'seen' by the issue, but many are. This example should clearly
demonstrate why I show the charts that I do, and the extent to which they are
being used by me.
I'll finish with a part of my layout, and what I have been watching
on this.
Let me lift a little text from the members'
area here:
"Ah, the conundrum. They want to sell bonds, as
inflation is in the system. But they can't, because they need to float the
debt. No desire to bring down the house of cards if you own most of the
cards."
"I see two line intersections that I want to watch very closely.
One is right below. The other hits dead on one of the three basic ABCD setups,
off the top there. If they sell the 10-year below that ABCD I suspect we will
be in meltdown mode. It is possible that treasuries could drop down and then
just hang around and chop there, but I don't see it. I am watching very
carefully here. Watch the dollar and the Euro, and gold. Money flow may be
changing again soon, and that means potential opportunity for me."
Now, given
this layout, the 'context', and what I am watching, can you see why I watched
this 'action spot', and why I would be looking at this the way I am? You see,
this is only a fraction of my entire assessment. I have detailed intermarket
analysis going on with currencies, gold, energy, and so on. I am watching a lot
of things that work with this, and I have those charts laid out. I am working
this all together in one larger dynamic. I am watching all of these things for
clues. Each clue goes into the assessment of the puzzle. Is it clear why simply
showing last week's chart, with an arrow pointing to one spot tells you almost
nothing?
I feel the Chart of the Week can be useful, if it is taken as it's
meant to be, and that is as an 'action spot' I am watching. Look at the charts
and see if price action 'sees' the area, and if (and how) it reacts there. See
if you understand why I am watching that spot, and try to figure out how I am
thinking about using the spot. Do not take the areas as spots I plan to
trade 'straight up'. Some may be set up that way, but many aren't.
My job here
is not to show you potential trades in advance, even if you would like that.
It's to try to make you think on your own. I choose these charts with that goal
in mind. They are only a tidbit, so to speak, but I feel they are worthwhile,
if you understand what they are trying to represent, and you use them, for your
studying, in that 'context'. It's not easy to come up with 'one liners' that
make a serious contribution to a broad audience's educational process. I think
this technique isn't too bad in this regard.
The next commentary will be next
weekend's edition, posted by Sunday evening, October 9, 2005.
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