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 October
22, 2006 Commentary (weekend edition)-
Another week
has passed into the history books. It was a week filled with a lot of good
trading setups, from the standpoint of my methodology. Given all that I have to
deal with right now I will not do a market review, but instead go over that
wheat example that I alluded to last week. I'll leave it to the readers to do
the work and discover the multitude of interesting things that are shaping up
right now, and that transpired last week.
I'll start with a few orders of
business, and then we'll get to our chart series. First, I want to thank
everyone who has sent along his or her condolences. The outpouring has truly
been huge, and is quite a wonderful surprise. Although it is difficult for me
right now to respond back to everyone, especially in a timely manner, I am
trying, and the kind words have been helpful.
I will need to be attending to some
family business next weekend, and I don't think I will have the time to do a
commentary. You can always check back, but it isn't likely I'll write one. The
following weekend, well, I'll have to see. I will be taking care of various
things on and off, and I just can't predict this far out right now. Let's say
the next one will be two weekends from now, so that I only miss next weekend,
and we'll see what happens.
Since I will be requiring the assistance on my chief
book shipping right-hand person during this period, I won't likely be shipping
books from the end of next week, for maybe a week or so. Feel free to order
before or after then, or, if you don't mind waiting a bit, you can order during
that period. I will likely be checking e-mail here and there, but I just can't
promise I will be able to get anything out right away. Hopefully, things will
settle down a bit for me after this upcoming period.
Lastly, I
have been adding testimonials as they come in, and I have a few I will get to
as soon as I can, so keep checking that page from time to time to look for new
ones. I also have several new free articles that are on their way to being
posted, but it will likely be winter before that actually happens. Keep
checking the free article page for anything new. I will also post something on
the What's New page when I add any new articles.
Let's look at wheat, from a little
ways back.
Wheat had a nice ABCD setup that it had
reacted very strongly off of. This was a key setup and play unto itself. Wheat
had reached a critical point here, though, and I wanted to watch it at this
point, not only for a potential short setup, but also to see what wheat had in
mind with the larger ABCD. I wanted to look for clues as to whether or not this
might be the first move area off that bigger pattern. Those who have really dug
into Kane Trading on: Trade
Management, and my mentor students, understand exactly why I am very
interested right here.
I'll add some things onto the chart, and zoom in a
bit.
I was watching the upper parallel of this
median line set very closely. I had a tight grouping just a little bit above
the line. I am not so precise that I need to see things move off a line or
grouping to the tick. I'm looking for areas, not exact spots. Although wheat
did react dead off the line, it threw a little 'stop run' stab up to the
grouping, and reacted there. I really wanted to see what would happen
now.
I'll move ahead with the price action and we'll see how this
progressed from here.
Wheat dumped pretty strongly right off the
area. Take a look at the lower timeframe action and you'll see it was pretty
nice-looking action from a trading perspective. Wheat started to bounce here,
and I was watching for that. Why? Well, I'll give you a framework explanation.
I'd like to do the full detail, but this medium is just too cumbersome for
that. This is something I get in to extensively in the mentorships.
I'll remove everything off the
chart, and add one 'new' set on there.
Normally, I would do this with an 'offset'
line, but it may not be all that clear, so I will 'shift' the set. When I work
one-on-one with a student, and I shift sets and explain what I am doing, and
why, it can be quite informative. It's much more difficult in here, but I'll
try. I noticed that the move down appeared to my eye to be the amount from the
upper parallel of the set I had in the last chart, to a division line. But the
upper parallel was overshot, hence I would offset that above the division
line.
To show this 'width' I simply 'shifted' the set here, with division
lines added on, and anchored it at the arrow. Lo and behold this slight upturn
was at a common area, the move from a parallel to the opposite division line. I
normally don't leave a set like this on unless I really see something else I
like with it placed like this. I only do this to show what I see, and what
would be clear to me with the original set and an offset line. I do a lot of
set shifting to examine various 'widths' of moves.
Let's move
ahead, and I'll add a Fib and trendline onto the chart.
Wheat bounced up hard off this area. Of
course, I had a lot more in the area than this one line, but it was a critical
part of what I was watching. Wheat then reacted right off the trendline in red
that I added, and the general area of the upper parallel. I suggest you go back
to the original set and see that the upper parallel for that is also right in
here.
Wheat then pulled back to the .300 retracement area, at the upper
division line. If this is to launch, and maintain the move off the bigger ABCD
pattern i.e. continue 'wave 3', this is the spot. It would take out many lines
with a thrust here, and some are very obvious lines. Although I sometimes will
play right off a setup like this, in many cases I am already long since
involved, and I use this area for assessment. Regardless, it is something I
want to be studying very closely.
Let's drop down to a 15-minute chart, and
look at how this is shaping up.
The arrow shows the area where the lines are
'pushing down' on this. Wheat pulls back from here to the .300/.382 retracement
area, right at a trendline, and then it gaps up and jumps right over the lines.
Go back to the daily chart and look at this. This is the exact type of price
action I want to see here when I am long, and exactly what I want to see if I
am looking to get long off this area.
I'll finish with a look at how this played
out, back on the daily.
Wheat never looked back after taking that set
area out. All this played out in typical 'wave 1,2, and 3' action right off
that big ABCD. Sets, lines, and groupings were used in all the stages as this
unfolded, as well as the 'launchpad' pullback to an expected area, right under
the key 'breakout' spot. I found the behavior of wheat as this unfolded to be
about as nice as I could ask for. Sure, there are a lot more details than I can
show in here, but the concepts should be clear.
I find that the commodities,
generally, really 'like' my methodology. I follow cotton, corn, wheat, beans,
cattle, hogs, sugar, OJ, lumber, coffee, cocoa, among others, in addition to
the main futures I usually discuss in here. I would suggest doing some chart
work on as many futures (choose the more liquid ones) as you can, as they
really form some fantastic setups.
Well, that's it for today. I hope this work
gave you some ideas. It's amazing how much similarity I find in what I do as I
apply the process, across the board, regardless of issues or timeframes. There
are variations and subtleties to each individual setup, but overall I keep
applying the same process to each situation. When you start to see that
similarity for your own work, I feel you will have made a big step in your
progress.
The next commentary will likely be a week from next weekend's
edition, posted by Sunday evening, November 5, 2006 (again, if all goes well
for me).
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