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 November
12, 2006 Commentary (weekend edition)-
I want to,
again, thank everyone for the continued stream of condolences. I really
appreciate this more than you can imagine. I managed to get back in the groove
a bit more this week, and have been watching some very nice things unfolding.
This was a real 'mini' week, and I can always tell this, outside of my own work
in the area, from the level of e-mails I get on a given topic. This week I got
more than my usual share, by a good stretch, about mini setups. Mostly I get
charts sent to me from various students showing me the work done on a setup
using my methodology. I love to get these type of charts.
I decided
that I'll do a Russell mini series for this week, since the e-mail indicator
was prompting me in that direction. In keeping with my usual philosophy in
here, and as a teacher, I am not going to just show a 'Here's a nice setup,
here's how it reversed dead of off it, and here's how it ran like crazy'
layout. I want to show things that give me something to work with, some way to
show some 'higher concepts'.
I chose today's work with that in mind, as I did with
the chart of the week. I even put a note on the chart of the week saying 'See
if you can figure out my 'concern' with this setup.' There are a few things
here you should be able to see of you do the work. I wanted, again, to find one
that I might be able to show some 'real world' trading issues with if it does
certain things. I'm always trying to do more than just show setup work.
Let's start
out with a Russell mini chart, on the 13-minute timeframe.
The mini is in a strong uptrend on this
timeframe, and is starting to correct back a bit. I have one of my 'adjusted' median line sets on
there. There is structure to the pullback, and that structure is completing
right in the area of the median line.
I don't know the 'context' from this chart, though.
There is a lot more going on here that just 'an uptrend', and this will guide
me in my decisions on potential trades. I suggest the reader look at the higher
timeframes and draw some conclusions, and see what you think I might have been
taking into consideration. There isn't time and space to assess the 'context'
today, so let's assume I had some ideas, and that you can form some yourself
before you read on.
Let's drop down to the 3-minute chart and look at that
structure.
The correction is a clear ABCD pattern, right
by the median line. This has my attention. I want to put a grouping together
and see how that looks, and if that meets my standards I'd move to adding some
additional lines. Of course this would be done well before the point on this
chart where a reaction has already started, I would be doing this once the C
point is completed, or appears to be completed.
I'll add on a grouping.
The grouping came together in a very tight
formation. I now have pattern, line, tight Fib grouping, and I would hope,
'context'. But what about 'context'? I'll just add a few things to the mix.
First, that trend had run a long time without a good-sized correction,
including a 'blow-off' finale, and second, it's getting to a critical area I
watch to watch closely for clues. That's not to mention the actual higher
timeframe analysis. Go to the daily and 60-minute and look around. I have a
big, key line right by point A that goes all the way back to August.
I'll add a
set onto the current price action, as well as adding on a few price
bars.
If this ABCD is to 'play out' I want to see
this line taken right out decisively. A little reaction here is fine, even
preferred, but that's it. And if I want to 'fade' the ABCD (that is, play
against it), this is my key area. This is a crucial spot. If you do my
'context' analysis you will see why I actually was looking for a 'countertrend'
play in here. Many times, this is how I find one. Look for a setup to continue
the current trend that I have been watching, but feel is under pressure from a
higher timeframe, and use a failed setup as a trigger.
Let's move
ahead a bit, and see how this is unfolding.
The Russell rolled right off that line, right
down to the lower parallel, setting a new low for the move, and taking out that
bigger median line decisively. It then bounced up and 'tested' the two overhead
lines from below, where it started to roll. When I see this, I usually say out
loud KIG (kiss it good-bye). This is usually accompanied by a sarcastic wave in
the air on my part.
Now, given this may have been developing into an
abcde correction at that lower parallel, once it rolled and set a new
low again, it really started to look weak. This is now at a crucial spot if
this is to 'recover'. Of course, my play was short on the rollover after the
ABCD 'pop', and this is where I want to watch closely if I am short. See how I
use the techniques for much, much more than finding obvious setups? So, if this
area goes, the next stop will likely be that bigger lower parallel.
Let's move ahead, and see how this
played out.
The first arrow shows the area where I was
watching for the rollover so I could look to 'fade' the ABCD setup. The second
arrow shows the clear reaction at the obvious lower parallel area. This was
followed by the 'test' of two key lines from below, showing extra weakness by
not even being able to 'fully' test the lines. This was then followed by the
complete breakdown at the next test of the lower parallel, from the last chart.
The Russell did shoot right for that bigger lower parallel, at that last arrow,
Notice how it kept tracking that line from there. After this point it did break
down further and take that line out.
This is a great example of how I don't get
stubborn, and wedded, to a potential setup. I try to evaluate the 'context' and
the entire layout, and then decide on a premise. This is why my charts of the
week are labeled with my 'I may trade it, fade it, or stand aside' comment. I
try to evaluate each setup as a unique situation, and come up with my best
possible trade premise. I do this because I feel I get another small edge in
doing it. Most people just trade the setups they have, end of story. If that
works for you, by all means keep doing it. I just feel, and this is simply my
own opinion, based on my experience, that I can do better by doing this
additional assessment work.
In closing I want to make two comments. First, I want to
thank one of my students, who sent me an e-mail saying 'This stuff is so good
it should be illegal.' It's comments like that that keep me going, and keep me
working hard for all those out there who are 'doing the work' trying to improve
their trading. Second, I was going to do today's work on NYX. I may do that
next week, if nothing better comes up. See if you can see why I was ready for
this big burst that just happened. See if you can apply today's concepts to
that one on the higher timeframes, and see if you can understand why I thought
that one was talking loudly and clearly to me. It is a great case
study.
The next commentary will be next weekend's edition, posted by
Sunday evening, November 19, 2006.
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