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July 25,
2004 Commentary (weekend edition)- Today is a
somewhat special day here at Kane Trading. When I was checking over some things
on the website it came to my attention that this edition is the one-hundredth
commentary that I have written and archived on the site. It almost seems hard
for me to imagine that I have done this one hundred times already. It also seem
incredible to me the amount, and what I consider to be the high level, of
trading information I have provided for my readers, all for free. This
'anniversary' got me to thinking, and I decided I might do something in
addition to my plans of finishing up Trade Management. That's all I am
going to say for now, but I want to let it be known that I am planning a big
surprise. The main problem for the readers is that I am not going to say any
more about it, and I can't even say when I may be able to offer the 'surprise'.
Given what I have decided, though, I can say that it will be very, very
significant, and worth the wait. It's hard for me to say if the
one-hundredth 'anniversary' was the main motivating factor, or something else.
Regardless, the readers of my books will be the benefactors. See, after
finishing up Kane Trading on:
Multiple Timeframes and 'Context' I mentioned that I was going to
finally get on Kane Trading on: Trade
Management and wrap that up. Then I was going to put my pen down, and
for the time being that was going to be it. The problem
is that I am struggling quite a bit with Trade Management. Not with the
material, but with the layout and presentation. This one is tough because it
covers many topics and aspects, and just doesn't flow together like the other
books. And after having done all that writing while trying to keep the same
level of effort on my trading, I am burned out. I think in reality I switched
over to Multiple Timeframes and 'Context' as much because of the
requests as because I found it a lot of fun to work on. Now, as I
struggle with Trade Management, I wonder if my desire to work on this
'surprise' is as much because it would be a lot of fun for me, and an escape
from the drudgery of Trade Management, as it is because I wanted to
celebrate this 'anniversary'. This won't be a long project since most of the
work is done and in notes already. It's just a matter of making the decision
that I would release what I had previously decided not to release, and to clean
it up for presentation mode. That's as much as I am going to say right now. It will
delay Trade Management a bit, but maybe the break will help me clear my
head a bit. It really is my intention to stop writing and take a break from
that type of work. I would prefer to do any future writing only if it is
actually fun for me. I'm writing Trade Management because it is material
people are asking for, and material I think is very needed. Let's move on
to some charts. Today I'm going to follow up on three of the four larger ABCD
patterns that I have been discussing for the last several weeks. The one I will
'leave out' is the bond setup, which, as we discussed, 'blew out' the potential
trade area without any entry trigger. I'll start with gold. As an aside,
keep in mind that many times I don't show the best contract for my trading in
the chart examples. Sometimes I choose a contract month because the chart shows
the data the best, or because I built groupings on that chart and have been
using that month for the discussion up to that point. Never assume I must be
trading the month shown because that is the month I used for the chart
examples.
Gold has continued to drop off the ABCD. As I
said last time, this is in management mode now. There was a potential 5-point
pattern in there that was blown out with this last down day (can you see what I
am talking about?). I was watching for a bounce in the 391 area, and it just
blasted right through it. That was curious to me, and told me something. Let's
look at this on the 40-minute timeframe.
That is just so classic it should be framed
and put up on a wall somewhere, preferably in an art gallery for traders. And I
don't mean what I did was so incredible; I mean the market. All I did was find
it (ahead of time) and point it out. I am impressed by how often I see things
like this, and how they play out. Before we move on I want to mention one more
thing that I hope the readers of my books caught right off. Notice the BC leg
of that pattern? What form does it take? Recall from Multiple Timeframes and
'Context' how I feel about that. It was just jumping out at me as this
second pattern developed. This setup is just totally classic. Let's look at
cattle now.
LC came right off that 1.000 ABCD. As you'll
recall, I pointed out this potential trade area back on June 30,
2004. There were plenty of solid entry triggers for this one, right out
of Kane Trading on: Entry
Techniques. Using those triggers frequently saves me the fate of a
trade like the bond trade would have been, had I chose to just 'fade' right in
at the potential trade area. This setup is one of my bread and butter plays,
the ABCD pattern set up to continue an established trend. Let me point
out here before we move on that the data bar from July 20 is incorrect. It was
a small range day in that general area, but for some reason the daily data
isn't accurate. Pull up a 15-minute chart if you want to see what it did on
that day. Let's look at nat gas now.
Recall how this one exceeded the 1.000 ABCD
area, and went straight to the alternate 1.128 grouping. It spent a lot of time
testing that area. In my book on ABCD patterns, I clearly explain in detail how
I form the different alternate ABCD patterns and how I assess, evaluate, and
trade off these patterns. These methods are new and unique, and I have not seen
anything like this presented anywhere else. If you trade 'regular' ABCD
patterns and you think you have them down cold, I think you are missing out on
some key concepts. Now, without redoing the entire book, what if I took a
trade off that 1.000 grouping (although you know why I wouldn't have)? It went
to the 1.128 grouping instead. Well, where would I have placed my stop? Why? I
can't imagine any entry I would have chosen on this where that stop would have
been remotely threatened. It doesn't matter to me which grouping it reversed
off of. What matters to me was how harmonic was NG behaving, how was it
acting in the potential trade areas, and how technically could I place a
reasonably tight stop? Those factors were very favorable. It's all in the
books. Now, my read here is that NG might be done. I'm not going to take a
trade off based on that 'gut feel' if you want to call it that. And it's not
really 'gut feel', it's my read on how the chart looks. This is the chart that
I like the least of the three. The effect this all has on me is that I may
alter my management plan, my trailing stops, to tighten up if the action
reverses to any extent. I want to see follow through. Hence, the action has me
scaling out of a bit when I otherwise might just sit tight and wait and see. A
strong move like this looks great and sometimes implies further movement, but
I've seen pops that just fade right back, and this one looks more like the
latter than the former to me. I want to walk away with something on a play like
this. I don't know how many times I can repeat that if I could only trade
one pattern it would be ABCD patterns that are set up to continue an existing
trend, with that special characteristic in the BC leg that we saw on the gold
chart. I like ABCD's in other 'context', such as various 5-point patterns, but
the trend correction ones are my 'specialty'. They are simple and, I feel, very
effective. Just look again at the charts I showed, in advance, for these
examples. I couldn't ask for more myself. The next commentary will be the
mid-week edition, posted on Wednesday.
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