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 September 10, 2006 Commentary (weekend
edition)-
So, did you find the clue this week?
Actually, by Wednesday I had updated the mentorship page, and added that
sub-page, so the story was laid right out by then. The clue was on the contact
us page, for those that were wondering if they had found it. I decided that
instead of explain what has been going on in here, I'll just refer you to the
mentor sub-page, so I don't have to tell the same story twice. That explanation
is plenty detailed enough. Simply go to the mentorship page, scroll down towards
the bottom, and look for the link. This way, I can use up my allocated space in
here for chart work and such. At least the big mystery is solved, at last.
Pretty anticlimactic, huh?
This week I'll do some follow up, and then look at some
interesting things in the Russell and S&P e-mini's. There is a lot to look
at right now, so I have to just pick a few things out of the myriad assortment
of possibilities. I try to choose things that may give me some educational
bang, either now or at some point down the line. Since I don't know the future,
it's sometimes difficult when I can only show a few things to pick things that
may be interesting down the road. I try to do my best, though.
Let's follow
up on that sweet crude play (no pun intended, as this is NY crude
anyway).
The D point on the upper left is the
completion point of that ABCD setup we looked at before, the one that formed as
price action came off that larger long setup. The arrow shows where we left off
last week. Let me quote from the last commentary: "...the short is now in
management mode, and is progressing nicely. But take a look at the chart of the
week and you'll see why I'm more alert and anxious here than if I just drank
fifty cups of coffee. That doesn't mean I jump out here at a 'profit target'. I
want to see what happens. If this area here goes, this may flush." and "Notice,
too, the price action on this timeframe from right past where I captured this
chart. See the pattern? Am I watching that for clues?"
The pattern,
of course, was that small 5-point pattern potentially completing by the arrow.
The price action had pretty much zero respect for that, as I suspected. Why did
I suspect that? 'Context'. If you've read Kane Trading on: Multiple Timeframes and
'Context', or Kane Trading
on: Trading ABCD Patterns you know why I would have little interest in
this setup. But I still wanted to see how it reacted there. Crude just keep
rolling down, and it is still in management mode. I'll discuss this further
after we see some daily 'context'.
Let's go back to the initial chart from the
chart of the week awhile back, and see how that looks.
Notice the pattern right around the potential
trade area (PTA). This is the ABCD from the previous chart where I got the
short trigger. There was a key area not shown here on the way down that I
showed in last week's chart of the week, which was a weekly chart. Crude 'saw'
the area and bounced slightly, and then right back down. That's why I ride, and
why I require entry
triggers.
Now look at the placement here with respect to that lower parallel
on that one set. It gets better than this, too. See this week's updated weekly
crude chart on the chart of the week, and see how this is now at a key 'bounce'
area. If it can't bounce here, what does that say? I added a second arrow on
that chart to give the general area where I would be watching closely if it
does bounce. Do all the work on this one, since I can't carry all the lines
over all the timeframes in here, or it would be too confusing. You do want to
see all the lines on this one.
Let's look at gold again.
Now, how curious is that? Gold pops right out
of that .618 line range, only to turn out to be a 'headfake', and right back
down to the bottom of that range, and with some aggressive selling to boot.
Will this fourth 'test' hold?
This is a great example of why I trade my
methodology, and not 'breakouts' or some of the other 'usual' techniques. I
will say that if you look on the lower timeframe (look at a 15-minute with all
sessions data), there were clear ABCD's at lines to get in the run up without
any lack of clarity. It was also just as clear when this no longer had the
upward 'flow'. If you know my work well this was likely very obvious. So, even
without a clear setup of the typical type on this timeframe, there was a lot to
work with down lower. And there actually was a pattern on this timeframe right
where it sold off, if you could justify the 'context'....
I'll follow
up now one more time on that 'trendline zone' on the Russell mini.
So, the Russell blasts through that zone, as
we discussed before. Once it completes that top there, it rolls right down to
the zone, and bounces up nicely. It's a bit difficult to see on this chart, but
drop down on the timeframes and it is quite impressive. Then it rolls back
down, right back to the zone, and bounces a bit again. This is a perfect
example of how I blend my methodology with some more traditional analysis. As I
look for setups I may want to work, I am also watching this. There is no doubt
this zone has been useful to me. Never overlook the obvious, regardless of your
methodology.
Let's look at something in the ES, just to be a little different. I
was asked about the ES the other day, so I decided to show this instead of the
Russell mini setup that I would typically be working.
The ES had been dropping very strongly when
it formed an ABCD at a key .382 and median line upper parallel. I also added on
a modified Schiff median line set there, and the upper parallel also hit right
into my PTA. But, alas, my point for today is not about the setup at all, or
the fact that this has been going down quite a bit already for a short.
I'll drop
down to the 3-minute chart and we'll see a bit of what happened from here, and
discuss this.
The ES overshot the area (keep in mind that
this is just a framework), but only by three ticks. This would in no way negate
this potential setup for me. The ES rolls right over (dropping about nine
points), with multiple very nice-looking entry triggers. It rolls right down to
the .886 retracement, at an area where an offset line based on that small
overshoot comes in. It then heads right to that upper parallel, and starts to
roll over a bit.
So, what was the trade premise? What would I do with my stops as
this unfolded? If I'm still in now, what do I do here? The point is, I have a
plan I follow, which I laid out the gist of in Kane Trading on: Trade Management.
I must have answers to questions like these before I even consider a
trade, not once I'm in a trade. The answer is not 'I'd close it as it
started to rush up off that .886 area', it's 'I'd follow my 'Trading Plan' and
manage accordingly'.
Let's see what happened from here.
The ES rolled down, then up, then down again
off the line, then up through he line, then sideways, and so on. Is the trade
over now? It totally depends. What? You'd sit through that sideways chop? It
totally depends. On what? On what the trade premise was, and what the
'Trading Plan' dictated me to do for the premise. With some premises the trade
would be long closed. With others, partially scaled out, and with others,
riding.
The point is, this price action is giving out clues all over the
place. Those clues are information for me to use. It does me no good to have
information if I don't have a fully structured plan to use that information
with. Without that, what good does the information do me? There isn't just one
answer to these questions. It depends on the plan. When I get into a trade I
have a fully defined plan in place for that trade, and I know what I plan to do
in every conceivable circumstance, and I mean every circumstance. If you
don't have a similar plan stop trading until you do!
Next weekend
I will be doing an extended mentorship (one of the 'overseas' ones where I do
it all in one shot), so I may not get to the commentary on time. I'll try to do
it before the weekend starts, but I may not have the time, given my prep and
such. I may be able to work on it one of the weekend days after the daily
mentoring, but doing four straight days of that, at the pace and level I go at,
won't likely leave anything of me left over for it. So, if it's late, just keep
looking, as I will get it up at some point.
The next
commentary will be next weekend's edition, posted, perhaps, by Sunday evening,
September 17, 2006.
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