Book: Kane Trading on: Trailing Stops
December 5, 2003 Commentary-
Today I'm going to point out something that I've spotted in silver. Let's start with a daily chart of what I'm looking at.

Chart 1
Do you see it? If you don't, don't worry about it, it sometimes takes a while to develop the skill to spot patterns right off. I'll highlight the chart with the pattern, and I'll also put the grouping that I built (based on the pattern) on the chart.

Chart 1
Silver came right off of the grouping, but has since bounced back up into the lower end of the grouping. This reminds me a bit of the daily ES and bond trades that we have been watching.
Let me comment on this silver setup. Those of you who have read my book Kane Trading on: Trading ABCD Patterns know that I don't particularly care for trading these 5-point patterns when they are set up to end a significant trend. I like to trade them when they set up to continue the trend. (Many traders, though, have great success trading these patterns when they are set up to end the trend, it's just not my preference to trade them in that manner.)
If you have been following silver, and especially gold and platinum (not to mention copper), those are markets that I have no interest in trying to call the tops of right now. Nonetheless, this is an interesting setup, and worth watching. If you drop down in timeframe you can see that silver has retraced back to a .786 and started to drift a little lower. Sometimes when I miss a setup by discovering it just after the fact I use a 'retest' like this to start looking for entry signals.
I'd like to point out that many times when I see a strongly trending market and a setup like this forms, it doesn't point to the ultimate reversal point, but it points to a fairly strong 'reaction'. I find many of those reactions to be tradable, as long as I trade them in the context of being a reaction and not a full-blown reversal. I'm watching silver in here for a potential trade of that sort.
Let's move on to an intraday setup that I saw forming in the ES on the 3-minute chart on Friday. This is what I was looking at when I decided it's time for a grouping, in case it played out. See if you can spot the potential pattern.

Chart 2
I'll add on the grouping that I formed at about this point.

Chart 3
Even though the grouping looks a little spread out, keep in mind that this chart is fairly close up. The actual spread is less than two ticks. Now that you can see the target area, can you see the potential pattern? I'll show how this one played out, and I'll highlight the pattern that I was watching for.

Chart 4
This one was a classic, with great entry signals and little 'heat' after entry. But there is something interesting to note with this example, something that may come into play on the AMLN example that we are watching.
Notice that gap above the grouping? The ES fell off right in the grouping, but didn't close the gap (if you call the gap closed based on the closing price from the day before). The groupings proved stronger than the 'gap magnet'. This is exactly what we are watching for if the AMLN example gets to the potential trade area. I'm really hoping AMLN gets to the area, because this one is a great 'case study'.
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