AR 51Previous Slide Next Slide
FFES Letter for the week of January 7, 1985
There was no letter last week due to the holiday and shortened trade week.
Just another reminder to those who have not sent in their $25 and still wish to receive the weekly letters.
First of all there was an error in the sugar chart comments in the 12/24/84 letter. Please correct line two (down from the top) to read: 揈vident when considering that the last ML of any significance that was reached by price action was.?This should make a great deal more sense to the intent of the comments.
For those members sending in questions for the professor to answer please follow these instructions. Leave an adequate amount of space on your chart or on your paper after the question for its answer.
We have had a few inquiries about option pamphlet information from subscribers. If you would like we will have our broker send you some information, just send us a note requesting this information.
Because of some of the questions sent in about our discussion of expanding pivots (EP抯) and skewed expanding pivots (SEP抯) we are going to devote this whole letter to their discussion and presentation. We had assumed that all of our members were familiar with these formations and their import upon market action that tends to follow their appearance. First, the expanding pivot is a situation where the market makes a pivot, then a lower P, then a P higher than at P1, next a P lower than at P2, and finally a P higher than at P3. This is shown schematically at the bottom of the page. A SEP is similar in that the P抯 swing wider but no new lows are made, only the size of the swings increase, This is also shown schematically. Note that P3/4 is greater than P1/2 and P4/5 greater than P2/3.
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AR 52Previous Slide Next Slide
Cocoa could not make the 9-11 ML 9-24/10-4 and falls to 9-24 ML 10-4/11-13
The 8-1 MPL 10-18 can be a CL to measure A & R. A is at 8-30/9-24 and R is down at this equidistance.
10-4 could be P1, 11-13 P2, and we are falling down to a P3 at 9-24 ML 10-4/11-13 or possibly to its MLH with a possible P3 at the R line.
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[ 本帖最后由 hefeiddd 于 2008-4-19 08:47 编辑 ]
AR 53Previous Slide Next Slide
Coffee Contract
1 ?Major 2P line from 5-23 to 8-31
2 ?Market too weak to rise to 2P line and the 7-30 ML 8-31/10-1
3 ?The 8-31 ML 10-1/11-13 points down steeply as does the 9-17 Schiff ML 10-31
4 ?Probability is for lower prices than at 132 on 10-1
5 ?Note the 5P抯 up from 10-29 to 11-13 before a price reversal
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[ 本帖最后由 hefeiddd 于 2008-4-19 08:48 编辑 ]
AR 54Previous Slide Next Slide
Wheat gave 5 major P抯 on DT from May 25
A new UT started on 10-5 and prices rose to the 7-25 ML 8-3/10-5 where 5 minor P抯 were made before a reversal down close to the 8-3 ML 10-5/11-6.
If the space at 11-15 holds then prices probably are going higher than at 11-6 on their way to a P3 at the 10?5 ML 11?6/11?15.
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[ 本帖最后由 hefeiddd 于 2008-4-19 08:49 编辑 ]
AR 55Previous Slide Next Slide
Soybeans are making a P5 of the DT that began 11-1.
Note that the 9-4 Schiff ML 10-5 called the P3 reversal on Nov 28 and is basically containing the downside of price action so far. The 11-12 ML 11-28/12-3 probably will call the P5 in the 600 area.
If this probable market action occurs than this should be the start of a new up trend. Also note that the MLH of the 11-12 ML has been the overhead resistance to prices so far, that is the sliding MLH.
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[ 本帖最后由 hefeiddd 于 2008-4-19 08:50 编辑 ]
AR 56Previous Slide Next Slide
After 5 P抯 of UT from Dec 7 we have made 5 P抯 down from 11-23 to the 10-11 ML 10-22/11-23.
The probability is for prices to now rise to the 10-22 ML 11-23/12-4 before a reversal. Please note that the overall trend is still up so we should expect higher prices after a small reversal. Note the 0 ML 1-2 calling P5 of UT and its MLH showing the point to sell after this rise.
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[ 本帖最后由 hefeiddd 于 2008-4-19 08:51 编辑 ]
AR 57Previous Slide Next Slide
Orange Juice had broken the neckline of a significant head and shoulders formation as noted (H for head and S for shoulders). Prices are in a steep drop along the 9-21 ML 10-30/11-26. The H&S projects to 144. If we use the 7-12 2P 10-30 as a CL to measure A & R we note the A line drawn H to CL at 9?21 high to give us our R objective at 146. It may be hard to believe that O J, going into the potential freeze season, projects to this low area, but that is the current probability.
Remember the course axiom the steeper the ML the faster the price action.
(R line not shown as it is off the chart)
http://www.medianline.com/images/555_AR57.gif
[ 本帖最后由 hefeiddd 于 2008-4-19 08:51 编辑 ]
AR 58Previous Slide Next Slide
Cocoa could not make the 9-11 ML 9-24/10-4 and falls to 9-24 ML 10-4/11-13
The 8-1 MPL 10-18 can be a CL to measure A & R. A is at 8-30/9-24 and R is down at this equidistance.
10-4 could be P1, 11-13 P2, and we are falling down to a P3 at 9-24 ML 10-4/11-13 or possibly to its MLH with a possible P3 at the R line.
http://www.medianline.com/images/564_AR52.gif
[ 本帖最后由 hefeiddd 于 2008-4-19 08:55 编辑 ]
AR 59Previous Slide Next Slide
Hagopian抯 Rule:
When prices reverse trend before reaching a line at which probability indicates such a reverse could start, proper action may be taken in buying or selling, as soon as prices cross the trend line they were moving along before reverse. (Mar. Corn, e.g.)
A large countermove is indicated and confirms the first action as above, when prices cross the first Trend Line sloping away from the original line. This line may be a trend line, a median line, a reaction line, or a moving average line. The rule still applies.
For example of May Soybeans chart, UTL2-4 is the first UTL to slope away from 2ML3-4, UTL1-3 the first on Pork Bellies, DTL2-4 and UTL5-7 on Sugar, and UTL2-4 and b-c and c-d on Wheat. The other TL that can be drawn from the low pivots, parallel or slope toward the original 揃arrier Line? whichever type of line we choose to measure from.
http://www.medianline.com/images/250_AR8parta.gifClick To Enlargehttp://www.medianline.com/images/218_AR8partb.gifClick To Enlarge
http://www.medianline.com/images/250_AR8partc.gifClick To Enlargehttp://www.medianline.com/images/236_AR8partd.gifClick To Enlarge
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AR 60Previous Slide Next Slide
For those whose tuition is fully paid we show a weekly price range chart for Winnipeg Berley nearest Futures, and the 3 steps in practical analysis of such a chart to assist in realising gains.
(1) We begin to wonder about the orderliness of price movements in stocks or in commodities, we note that whenever there is a sudden drop or rally, it is a signal that a series of 10 degree T.L.s (Trend Lines) can be generated as drawn in on this chart, each a 揌orn of Plenty?
(2) Gathering data and taking measurements on numerous active charts shows that these drawn?in T.L.抯 are frequently helpful in determining the pivots (buy and sell points).
(3) To find out just how orderly and useful these relationships are, we note that the rise can go on without any concern to those with a 搇ong position? provided the price movement stays within the first two 10 degree lines as shown.
Upon crossing the 20?(degree) line, prices frequently drop to the 30?line, giving opportunity to add to one抯 long position, or 損yramid?for possible resumption of the rise along or within the 40?line. Frequently, crossing the 40?up-trend line, or UTL means beginning a substantial DTL (Down Trend Line). This is very frequently true if this downward counter move is preceded by a sharp vertical peak. The top of the price movement shown here is a rounding top, as named by Chartists.
Obviously the slope of the TLs depends upon the relative proportions of the coordinates used by the maker of the chart. But by counting how frequently these pivots occur, and the exactness of fit for each particular stock or commodity charted, indicates the reliability of the probability for their reoccurrence. And action can be taken when the odds are strongly in your favor.
The words above that are underlined are all terms used in the study of Probability. Reference to the chapters dealing with Frequency, Reliability, Exactness of Fit, in Monroney抯 揊acts from Figures? go into their meaning and application in detail.
Upon request you will be supplied with Stephen's Stocks or Horsey抯 Stock Picture if you wish to apply the various aids provided by this course to particular stocks that you own or are interested in. Also you will be supplied with Dupont抯 Chronoflex if you wish to fasten this transparent drawing paper over your charts in order to avoid drawing-in the various lines and measurements on the charts directly.
We have also designed several devices or tools, in the use of which protection is provided through the US Patent Office, which will make it easy for you to apply the principles of probability which we have developed relative to price movements. These methods will enable you to continue to make gains similar to those made by others in this course who followed the indications properly.
Alan H. Andrews, Director
[ 本帖最后由 hefeiddd 于 2008-4-19 08:55 编辑 ]
AR 61Previous Slide
The NY Silver chart below was drawn by a new member, Mr. Edward Palm applying the Foundation抯 揌orn of Plenty Study? Mr. Palm has made, and is making an exhaustive Study of all available scientific Courses relative to Price Prediction, and was before going into business for himself the writer of the periodic letter sent to customers of one of the largest Commodity Firms.
The lines below from the 揌orn?method illustrate how prices fluctuate along these regular geometric 10 degree radial lines as well as between them.
Another Course member has written us that he has made very satisfactory profits from the 揌orn?method and it is apparently his favorite course method.
It seems natural for each person to select a method that appeals to him. One of our friends who is one of the County抯 largest Traders told the writer that he liked the Moving Average Channel line method for although it didn抰 get him in always at the bottom or out at the top, it did give him profits from the long trends. However this man was constantly on the lookout for other successful methods. For there may be frequent times when other methods can prevent some of the 搘hip?saws?common to side wise movements of prices in their fluctuations.
You might like to put a piece of tracing paper over this chart and start your radial lines from the low on the last of November 1973 at the 275 area and see the similar fluctuations along and at these radial lines. Such practice certainly gives the investor a 揻eel?of the market.
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Action Reaction Course Original Alan H. Andrews Materials As Posted By Median Line
The material presented here has been transcribed from the web site, and an attempt has been made to make the charts more readable. Minor spelling and grammatical changes have been made sparingly. (Note that page AR 42 on the web site contains AR43. The AR42 here is from a photocopy of the original materials.)
PageContents (Click On Page ID To Go To Selected Page)
AR1Introduction 1
AR2
Introduction 2
AR3
Glossary Of Terms
AR4
Rules - Median Line, Mini Median Lines, Action Reaction Methos
AR5
Discussion About Newton and Marechal's Chart
AR6
General Comments (Includes Marechal's Chart)
AR7
Drawing Median Lines
AR8
Hapogian's Rule - Descriptions and Charts
AR9
Fan Lines
AR10
Fan Lines and "Horn Of Plenty"
AR11
Course Rules
AR12
Drawing Median Lines
AR13
Days Of Week and Pivot Occurences (Sliding Parallels) AR14
Trading Off The Median LinesAR15
Trading Example Sent In By A Course Student
AR16
Warning Lines
AR17
Action Reaction Example
AR18
Modified Schiff ML, Schiff ML
AR19
Schiff And Warning Lines
AR20
Median Lines Trading Example
AR21
Trading Off The Median Lines
AR22
Action Reaction Rule
AR23
Median Line Trading Example
AR24
Action Reaction Lines Trading Example
AR25
Zreo To Three Lines (0-3) Discussion
AR26
Diagram For The (0-3) Line Discusion
AR27
Action Reaction Lines Trading Example
AR28
Use Of Action Reaction Lines
AR29
Profit Examples For Trading Median Lines
AR30
Profit Examples For Trading Median LinesAR31
Action Reaction Rule Examples Using (0-1) CL
AR32
Action Reactoin Rule and (3) CL Lines
AR33
Action With (0-4) Center Line Example
AR34
Profit Examples For Trading Median LinesAR35
Action Reaction Example (Chart Not Completel Cleaned - Difficult To See)
AR36
Action Reaction Example Including Usage With RSI Indicator
AR37
Expanding Pivot Formation
AR38
Drawing Median LinesAR39
Action Reaction Example and Discusion (How To Draw Lines)
AR40
Action Reaction Step By Step Working Of Projection For Next PivotAR41
Action Reaction Step By Step Working Of Projection For Next PivotAR42
Prof. Anderson's Five Pivot Rules
AR43
Non Median Lines Charts - Waves
AR44
The Examples For AR42 - Waves
AR45
The Examples For AR42 - Waves
AR46
Action Reaction Lines Trading Example
AR47
MPLs And Multiple LInes Converging (Diagram 1 Is Not Labeled Correctly)
AR48
EP Example
AR49
EP ExampleAR50
EP ExampleAR51
Expanding Pivots Discussion
AR52
Action Reaction Example
AR53
Median Line Example
AR54
Median Line ExampleAR55
Median Line ExampleAR56
Median Line ExampleAR57
Median Line Example With Head And Shoulder Pattern
AR58
Action Reaction Example
AR59
Hapogian's Rule - Descriptions and Charts AR60
Fan Lines
Roger Babson Biography This brief biography is directly from published materials collected and published by Babson College
"I more and more see the need both of courage to stand fast and the willingness to change. Even though these two characteristics seem contrary and paradoxical, a successful life demands a proper mixture of them both. One is the lock and the other is the key; either without the other becomes useless." --Roger Babson, "Before Making Important Decisions"
Roger Ward Babson (1875-1967) achieved many successes in his lifetime. His personal and professional accomplishments as entrepreneur, educator, and philanthropist demonstrate the merits of his particular formula for success: the combination of tradition and innovation.
http://www.medianline.com/images/125_rwb1940.gifRoger Babson
The Babson Ancestry
Representing the tenth successive generation of Babsons to live in Gloucester, Massachusetts, Roger Babson valued his heritage. He researched his ancestors, investigating their personalities, professions, and lifestyles. Beginning with Isabel Babson, who came to Massachusetts from England in 1637, Roger Babson discovered a lineage of farmers, merchants, midwives, religious preachers, and sea captains. Believing that personality traits were hereditary, Roger Babson continually looked for opportunities to foster and benefit from his ancestors' individual attributes.
Educating Roger Babson
Roger Babson also valued lessons from his childhood, especially the business and investment practices he learned from discussions with his father, Nathaniel Babson, who owned a dry goods store. Despite Roger's interest in business, his father had little faith in colleges and their academic programs. Against Roger's wishes, Nathaniel decided his son would pursue a rigorous, technical education at the Massachusetts Institute of Technology. Feeling that the instruction "was given to what had already been accomplished, rather than to anticipating future possibilities," Roger Babson believed that his professors had failed to foresee the great industries of the 20th century: automobiles, aviation, motion pictures, phonographs and radios. The one aspect of his studies at M.I.T. (1895-1898) that he valued throughout his life was learning about the British scientist, mathematician, and philosopher, Isaac Newton. Roger Babson was impressed by Newton's discoveries, especially his third law of motion--"For every action there is an equal and opposite reaction." He eventually incorporated Newton's theory into many of his personal and business endeavors.
Business Beginnings
While on break from M.I.T., Roger Babson applied his engineering studies to various highway projects throughout Massachusetts. Upon graduating in 1898, Roger knew for certain that he preferred an alternative career. Nathaniel Babson counseled Roger to find a line of work that would ensure "repeat" business indefinitely. After careful consideration, Roger Babson decided to try the world of finance and looked for work as an investment banker.
In 1898, Roger began his business career working for a Boston investment firm where he learned about securities, stocks, and bonds. Inquisitive by nature, Roger Babson soon knew enough about investments to get himself fired. Acting in the best interests of his clients, he had questioned the methods and prices of his employer and quickly found himself out of work. Babson subsequently set up his own business selling bonds at competitive prices in New York City and then in Worcester, Massachusetts. By 1900, he returned to Boston to work once more for an investment house and in March of that year, he married Grace Margaret Knight and moved to Wellesley Hills, Massachusetts.
A New Lease on Life
In the fall of 1901, Roger Babson contracted tuberculosis. His doctors initially told him that that a cold "had settled on his lungs." When Roger demanded to know the exact nature of his illness, he was given a decidedly gloomy prognosis. The tuberculosis had seriously affected one lung and had begun to attack the other; it was not certain if he would survive. For Roger Babson, resignation was not an option. Demonstrating his characteristically dogged determination, he resolved to fight the disease and live a productive life. Rather than seek a "fresh air" cure in the milder climates of the American Southwest, Roger remained in Wellesley Hills. Cared for by Grace, a nurse by training, Roger gave a great deal of thought to how to continue his investment career away from a city environment. He ultimately decided to start a business based upon his investment expertise. While Roger finalized his business plans, Edith Low Babson, Roger and Grace Babson's only child, was born on December 6, 1903.
Wall Street Comes to Wellesley Hills
Aware that every financial institution employed statisticians who duplicated each other's research efforts, Roger chose to develop a central clearinghouse for information on investment information and business conditions. He would publish his analysis of stocks and bonds in newsletters and sell subscriptions to interested banks and investors. In 1904, with an initial investment of $1,200, Roger and Grace Babson founded Babson's Statistical Organization, later called Business Statistics Organization and then Babson's Reports, which continues to thrive today as Babson-United Investment Reports. As pioneers who helped revolutionize the financial services industry, the Babson's and their organization realized millions of dollars in annual revenues in the company's first decade.
Pass It Along: Entrepreneurship and Philanthropy
Having amassed a sizable fortune, Roger Babson was not content to join the idle rich. Instead he shared his business knowledge to protect investors, and invested his own wealth in industries and endeavors that would benefit humanity. After witnessing a dramatic stock market crash and financial panic in 1907, Roger Babson expanded his investment practice to include counseling on what to buy and sell as well as when it was wise to purchase or unload stocks. Working with M.I.T. Professor of Engineering George F. Swain, Roger Babson applied Isaac Newton's theory of "actions and reactions" to economics, originating the Babsonchart of economic indicators, which assessed current and predicted future business conditions. Although the Babsonchart has since proved to be an imperfect tool, through it Roger Babson earned the distinction of being the first financial forecaster to predict the stock-market crash of October, 1929, and the Great Depression that followed.
Roger Babson extended his interest in the public's welfare beyond investment counseling. He encouraged industries to develop products to improve public health and safety. Among businesses receiving Roger Babson's approval and financial backing were select manufacturers of sanitary paper towels and other hygienic products, fire alarm call boxes, fire sprinklers, and traffic signals.
Roger Babson saw it as his duty to share his insights and experience. An avid reader and writer, he sought to dispense his brand of advice and wisdom beyond the readership of Babson's Reports. From 1910 to 1923, he commented on business and other matters as a regular columnist for the Saturday Evening Post. He also contributed weekly columns for the New York Times and for the newspapers owned by the Scripps Syndicate. Babson eventually formed his own syndicate, the Publishers Financial Bureau, to disseminate his writings to papers across the United States. Over the course of 33 years, he authored 47 books, including his autobiography, Actions and Reactions. Although his writings covered topics as diverse as business, education, health, industry, politics, religion, social conditions, and travel, the primary message behind each work was that individuals and society could and should change for the better.
The Founding of Babson College
Beginning in 1908, Roger Babson offered through Babson's Statistical Organization a correspondence course on how to sell bonds. This endeavor was an instant success and courses in economics, finance, and distribution soon followed. He then saw the need for a private college that specialized in business education. In June 1919, in a special letter to clients of the B.S.O., Roger Babson announced the establishment of a school of business administration to provide not only practical but also ethical training for young men wishing to become business executives. On September 3, 1919, with an enrollment of 27 students, the Babson Institute (renamed Babson College in 1969) held its first classes in the former home of Roger and Grace Babson on Abbott Road in Wellesley Hills.
From the very beginning, Roger Babson set out to distinguish the Babson Institute from other colleges offering instruction in business. The Institute provided intensive training in the fundamentals of production, finance, and distribution in just one academic year, rather than the standard four. The curriculum was divided into four subject areas: practical economics, financial management, business psychology, and personal efficiency, which covered topics such as ethics, personal hygiene, and interpersonal relationships. The program's pace did not allow time for liberal arts courses and it was assumed that students would learn these subjects elsewhere.
Believing experience to be the best teacher, Roger Babson favored a curriculum that was a combination of both class work and actual business training. Seasoned businessmen instead of career academicians made up the majority of the faculty. To better prepare students for the realities of the business world, the Institute's curriculum focused more on practical experience and less on lectures. Students worked on group projects and class presentations, observed manufacturing processes during field trips to area factories and businesses, met with managers and executives, and viewed industrial films on Saturday mornings.
The Institute also maintained a simulated business environment as part of the students' everyday life. The students, required to wear professional attire, kept regular business hours (8:30 a.m. to 5:00 p.m., Monday through Friday, and 8:30 a.m. to noon on Saturday) and were monitored by punching in and out on a time clock. They were also assigned an office desk equipped with a telephone, typewriter, adding machine, and Dictaphone. Personal secretaries typed the students' assignments and correspondence in an effort to accurately reflect the business world. Roger Babson prepared his students to enter their chosen careers as executives, not anonymous members of the work force.
The Babson Legacy
Babson College continues to be one of Roger Babson's greatest achievements. Remaining close to his initial conception of offering practical business and management instruction, the College now offers a graduate business degree and courses in executive education in addition to a four-year undergraduate business program. Roger Babson's success with Babson College led him to establish Webber College in Babson Park, Florida, in 1927. Named after his granddaughter, Camilla Grace Webber, the College initially provided business education to women, similar in many ways to the courses at Babson College. Webber College is now a coeducational institution. To bring practical business instruction to other parts of the United States, in 1946, Roger Babson established a two-year, certificate-granting school, Utopia College, in Eureka, Kansas. Utopia College graduates were invited to complete their baccalaureate degrees at the Babson Institute. Due to declining enrollments, Utopia College closed in the early 1970s.
Following Newton's law of "actions and reactions," as one venture in Roger Babson's life concluded, a new endeavor naturally began. He was never discouraged by setbacks. One of his greatest assets was his willingness to take chances and to rebound when risks overshadowed outcomes. In addition to his pursuits in education and business, Roger Babson actively engaged in religion, politics, and scientific advances.
According to Roger Babson, the greatest experience of his life was his religious conversion at the age of fifteen. Indeed, an unshakable faith in God was one of his primary personal beliefs. From 1936 to 1938, Babson served as National Church Moderator for the General Council on the Congregational-Christian Churches (later known as the United Church). During his term, he forced the Council to examine itself and its weaknesses as he continually pushed himself, his business colleagues, and the students who studied at the Babson Institute. Using statistics, Babson showed that church development and attendance followed a cyclical pattern that was similar to business trends. He feared that the declining interest in religious activities was a clear and accurate indicator of the declining moral state of society. His appeals to chart a more morally correct course for the church, and for society, were met with defiance and personal threats. Roger Babson's tenure as moderator ended in great disappointment.
However, not one to give up easily, Babson turned his attention to the promotion of an "Open Church." Through a volunteer network, church doors would be unlocked every day, all day, so that persons of any faith could pause for private worship within the spiritual and curative sanctuary of a church. This experiment began in Wellesley in 1938; by 1942, the national Open Church Association was incorporated with its headquarters in Roger Babson's ancestral home of Gloucester.
Roger Babson's religious convictions also extended into the world of politics. In 1940, he ran for President of the United States as the candidate for the National Prohibition Party. Although the church-affiliated party was best known for wanting to outlaw vices such as alcohol, gambling, and narcotics, as well as indecent movies and publications, the party also advocated reducing debt and taxation, conserving natural resources, aiding farmers, and "assuring workers and consumers a fair share of industry's products and profits." Although Roger Babson knew his party would not win the election, he felt it was his duty to bring its moral and religious agenda to the nation. Out of a field of eight candidates, Roger Babson followed third behind Franklin Roosevelt and Wendell Wilkie.
Another risk that Roger Babson took, although he was often ridiculed, was to promote research on gravity. Believing that the scientific community had done very little to expand upon Isaac Newton's studies of gravity, he created the Gravity Research Foundation in 1948. Roger maintained that a conductor could be built, along the same principles as a waterwheel, for harnessing gravity waves as they occur in nature. He hoped that the invention of a perpetual motion machine would solve the world's dependence on nonrenewable fuels. The nonprofit foundation, which still exists today, encourages research and acts as a clearinghouse for studies on gravity.
Throughout his long life and his many enterprises, Roger Babson was able to successfully foresee and foster change while holding fast to fundamental spiritual and ethical values. As a devoted educator, he saw it as his mission to pass along the basic truths that he learned from experience:
"It is not knowledge which young people need for success, so much as those basic qualities of integrity, industry, imagination, common sense, self-control and a willingness to struggle and sacrifice. Most individuals already have far more knowledge than they use. They need inheritance and development of a character which will cause them properly to apply this knowledge. . .Real business success comes through the qualities above mentioned, not through money, degrees, or social standing."
ML 1Next Slide
http://www.medianline.com/images/550_ml1.gifClick To Enlarge
In this first example, price made a regional high and then traded lower before forming a base. Price then traded higher before spiking lower, making a new low in the process. After forming another base, price climbed a bit higher, but is still far short of its regional highs.
http://www.medianline.com/images/550_ml2.gifClick To Enlarge
Choosing pivots in this example is relatively straight forward. We'll use the regional high as Pivot A. When price forms a base and begins to move higher from that area, we choose the low of that base area as Pivot B. After price rallies far enough to move above the wide range spike bar that took price lower to form Pivot B, we wait until the rally stalls and a congestion area forms. Once price turns lower and trades below the high of that same wide range spike bar, we choose the high of the congestion as Pivot C.
http://www.medianline.com/images/550_ml3.gifClick To Enlarge
Once we've chosen three alternating pivots, the first step in creating a Median Line is drawing a line that connects Pivot B and Pivot C. This line will project price's potential energy forward in time as price moves along the slope of the Median Line, which we'll add in a moment.
[ 本帖最后由 hefeiddd 于 2008-4-19 09:02 编辑 ]
http://www.medianline.com/images/550_ml4.gifClick To EnlargeNow we find and mark the center of the line connecting Pivot B to Pivot C. This center mark, when connected to Pivot A, will be the dividing line between the upside energy potential of Price and the down side energy potential of Price, as Price moves forward in time.
http://www.medianline.com/images/550_ml5.gifClick To Enlarge
We connect Pivot A with the center of the Line connecting Pivots B and C and that gives us the Median Line. The Median Line visually tells us two things:
It projects the slope of price as it moves forward in time. The slope of the Median Line tells us visually if price is in an up trend, a down trend or in a range.
The steepness of the slope tells us just how fast Price is likely to move up in an up trend or down in a down trend.
The Median Line, when used in context with its Upper and Lower Median Line Parallels, can show us visually what the trend is, how strong that trend is, and it can show us where Price is most likely to have expended its up side or down side energy as Price moves forward in time.
http://www.medianline.com/images/550_ml6.gifClick To Enlarge
Now I draw a line from Pivot C that is parallel to the Median Line. This is the Upper Median Line Parallel and it marks the area where Price is most likely to run out of energy to the up side. This frequency, or measure of potential energy, is generated by the relationship between Pivots B and C as they relate to Pivot A. In later slides, you'll see how we use these lines and their ability to show us where price is likely to have expended its stored energy when trading.
http://www.medianline.com/images/550_ml7.gifClick To EnlargeNext I draw a line from Pivot B that is parallel to the Median Line. This is the Lower Median Line Parallel and it marks the area where Price is most likely to run out of energy to the down side. This frequency, or measure of potential energy, is generated by the relationship between Pivots B and C as they relate to Pivot A. Again, in later slides, you'll see how we use these lines and their ability to show us where price is likely to have expended its stored energy when trading.
Now that you've seen how a Median Line is constructed, it's important that you understand a few of the principles behind this very powerful tool. I'm going to show you some visual examples, along with some quotes directly from Dr. Andrews' original "Action Reaction Course," that he taught for many years at his homes on the East Coast as well as at his South Florida residence.
This is the single most important statement made in Dr. Andrews' original course:
Median lines and Median Line Parallels: the Median Lines enable the user to be one of the few who can tell where the prices are headed, and the place they will reach about 80% of the time, and when approximately that place will be reached.
After personally drawing and studying hundreds of thousands of charts in my thirty years of trading, I can tell you that I have done in-depth statistical validation of the above statement and indeed, price DOES reach the Median Line or its Upper or Lower Median Line Parallel about 80 percent of the time. This, in and of itself, is an incredibly powerful thing to know!
Now let's look at the course rules and examples of each them.
Action Reaction Case Study Course Rules:
There is a high probability that:
1. Prices will reach the latest Median Line.
2. Prices will either reverse on meeting the Median Line or gap through it.
3. When prices pass through the Median Line, they will pull back to it.
4. When prices reverse before reaching the Median Line, leaving a 搒pace? they will move more in the opposite direction than when prices were rising toward the Median Line.
5. Prices reverse at any Median Line or extension of a prior Median Line.
Let me point out again that when Dr. Andrews writes "Median Line," he is also speaking about the Upper and Lower Median Line Parallels.
Now let's look at each of these course rules visually.
A Visual Inspection Of The Action Reaction Case Study Course Rules:
There is a high probability that:
1. Prices will reach the latest Median Line. http://www.medianline.com/images/550_ml11.gifClick To Enlarge
Let me point out again that when Dr. Andrews writes "Median Line," he is also speaking about the Upper and Lower Median Line Parallels.
A Visual Inspection Of The Action Reaction Case Study Course Rules:
There is a high probability that:
2. Prices will either reverse on meeting the Median Line or gap through it.
Before I show you these charts, let me point out that the Action Reaction Course was written by Dr. Andrews at a time when the exchanges were only open during the day--there were no overnight or electronic sessions. And remember also that the only data readily available was end of day daily data. Gaps were much more common on charts in those days, because once any market closed in the afternoon, any news that came out after the close would not be reflected until the opening prices on the next day.
Because of the differences brought about by 24 hour Globex market sessions and the fact that real-time intraday data is now available to almost anyone, a few of these principles have been re-stated to better reflect the current state of today's average trader or chartist. You'll note in this example that I've added a third probability to Dr. Andrews' original two regarding what Price is likely to do when it approaches the Median Line:
http://www.medianline.com/images/550_ml12b.gifClick To Enlarge
http://www.medianline.com/images/550_ml12c.gifClick To Enlarge
http://www.medianline.com/images/550_ml12d.gifClick To Enlarge
Let me point out again that when Dr. Andrews writes "Median Line," he is also speaking about the Upper and Lower Median Line Parallels.
A Visual Inspection Of The Action Reaction Case Study Course Rules:
There is a high probability that:
3. When prices pass through the Median Line, they will pull back to it.
This principle was shown, but not explained, in the last slide on the prior page, so I will repeat the image here along with a more thorough explanation.
When Price passes through or "zooms" through the Median Line, it is extremely likely that price will come back and re-test the Median Line. In my writings, I call this a "Zoom and Re-Test." You will learn later that this is an extremely powerful concept.
http://www.medianline.com/images/550_ml13.gifClick To Enlarge
Let me point out again that when Dr. Andrews writes "Median Line," he is also speaking about the Upper and Lower Median Line Parallels.
A Visual Inspection Of The Action Reaction Case Study Course Rules:
There is a high probability that:
5. Prices will reverse at any Median Line or extension of a prior Median Line.
http://www.medianline.com/images/550_ml14.gifClick To Enlarge
Let me point out again that when Dr. Andrews writes "Median Line," he is also speaking about the Upper and Lower Median Line Parallels.
A Visual Inspection Of The Action Reaction Case Study Course Rules:
There is a high probability that:
5. Prices will reverse at any Median Line or extension of a prior Median Line.
http://www.medianline.com/images/550_ml15.gifClick To Enlarge
Let me point out again that when Dr. Andrews writes "Median Line," he is also speaking about the Upper and Lower Median Line Parallels.
Introduction To Median Lines
The material presented here is my own work. It is meant to be a brief introduction of the drawing and use of Median Lines or Pitchforks, as they are often referred to. For more detailed information, I can suggest no better source than the books I have published on Median Lines and their use. To my knowlege, they are by far the most comprehensive books published on the subject and I have done my best to keep the spirit of Dr. Andrews' work alive within these books. If you would like to order my books please click here.
I also suggest you check the MedianLine website regularly, because I do my best to not only show trade set ups, but to show in great detail how I use these tools in my everyday trading.
PageContents (Click On Page ID To Go To Selected Page)
ML1
Beginning With Just Price Bars
ML2 Choosing Three Alternating Pivots ML3 Connecting Pivots B and C ML4 Find The Mid-Point Of Line B-C Methods ML5 Draw A Vector From Pivot A Through The Mid-Point Of Line B-C ML6 Adding The Upper Median Line Parallel ML7 Adding The Lower Median Line Parallel ML8 Action Reaction Course Introduction ML9 Action Reaction Course's Most Important Statement ML10 Action Reaction Course's Five Most Important Concepts ML11 Prices Test The Median Line 80 Percent Of The Time ML12 Prices Reverse Or Gap Upon Meeting The Median Line ML13 Introducing The Zoom And Re-Test Concept ML14 Two Looks At Dr. Hagopian's Rule ML15 Prices May Reverse Upon Meeting Any Prior Median Line Or Its Parallels
Article By Timothy Morge http://www.medianline.com/images/337_TD_logo.gifPublished Bimonthly For Graduates Of The Trend Dynamics Course
Strategies :: Tactics :: Analysis
May/June 2001
With this issue, we continue our exploration inside the minds and trading rooms of professional traders in the Trend Dynamics trading community. In this installment we visit Timothy Morge at Blackthorns Capital in Chicago, Illinois where he manages a private fund and trades stock indices as a private speculator. Over the past twenty-five years Morge has been immersed in price action as a floor trader on the CME (Chicago Mercantile Exchange), a cash FOREX trader, an institutional arbitrageur, a professional offshore fund manager, and private speculator.
In the interview that follows, Morge shares his experiences as a trader and reveals how he trades in today's markets.-Ed.
Ed: Tim, tell us how you first became interested in trading?
Timothy Morge: My father was a welder and a self-taught engineer. One of his business acquaintances was a wonderful guy who ran a large scrap-metal operation. He traded copper futures and that fascinated me. He gave me access to his extensive trading library that featured rare courses and manuscripts from the pioneer trading technicians of the 1930-1950 era. I love the technical analysis research of that period-one of my friends aptly calls it the "golden age of technical analysis." That was when I first came across Dr. Andrew's Median Line concepts.
I spent whatever time I could watching him update his charts, talking with him about what he thought about the Copper market or what he was doing with his positions. That was in 1974, and I was just turning 16. I graduated from high school a year early, and enrolled at the University of Chicago as a math/physics major in 1975.
Because I was a math/physics major, I had large blocks of time available to me on the university's mainframe computers. In fact, I had more time allotted to me than I could use, so friends would barter with me for my excess time on the mainframe. One of my dorm buddies came to me one night and told me he needed some time on the computer because his father wanted to build a predictive model for U.S. T-Bill prices. I offered my buddy some time blocks and volunteered to pitch in with the project. I spent a great deal of time constructing a database of historical raw commodity prices for them and a Fed-action database (with information such as weekly Fed actions such as regulating the money supply, discount window activity and changes in Fed funds/ discount rate) and then wrote a model that made a prediction for three month interest rates. It was a great learning experience, but when the computer model's predictions differed from the father's hunch about where interest rates were heading, he chose to ignore the model and proceeded to lose some $4 million dollars in margin.
Right after college, I was hired as a junior economist for the Harris Bank in Chicago. My department was charged with managing and developing a model that forecast the federal budget for Harris. At the time, Harris' Chief Economist was Dr. Beryl Sprinkel. Ronald Reagan was just beginning his run for the Presidency and many of his economic facts and figures concerning monetarist economic policy came out of our department. After he became the President-elect, Dr. Sprinkel was chosen to join his Treasury cabinet; shortly thereafter the bank's heavy funding of the economic department came to a close.
What did you learn by developing these two econometric models, the interest rate model and the federal budget model?
The faculty at top Business Schools like the University of Chicago and MIT spend a great deal of time teaching that markets are random, that trying to model them is useless. I found that false - that markets do have repetitive patterns; and it was not a great leap to take the data management skills I had developed in building econometric models and turn them toward evaluating and exploiting trading opportunities in the markets.
In 1980, I was offered a new job trading T-bills. For my training they sent me to their Foreign Exchange (FX) area and I seized an opportunity to become a cash FX trader. I traded mostly cash FX from 1980 through late 1988 for Harris, Bank of America, and First National Bank of Chicago in late 1985. First Chicago hired me as their chief dealer and by late 1988, I was put on their risk management committee, which was a part of their Board of Directors. I was in charge of executing and monitoring the bank's risk in their multi-billion dollar portfolio of proprietary trading positions that included: cash FX positions, cash bond and note positions; and even stock index and cash stock positions.
What important lessons or attitudes did you learn from that vantage point?
The realization that all traders are created equal in the eyes of the markets. I had several clients that held huge currency positions. They would constantly speak about how the normal trading rules didn't really apply to them because their portfolio was several billions to $50 billion (in U.S. dollars). They really believed that their portfolios were important and were subject to a different set of trading rules. This became more glaring when it came to taking losses. I would hear they weren't taking their losses at a certain price level, which was their initial stop loss area, because the market was just too thin; or, because they wanted to see how the Asian or European or U.S. markets reacted to these so-called "ridiculous" new price levels.
When I started managing other traders as part of my responsibility, I'd hear similar justifications for exceeding stop-loss limits. And finally, I'd have to take over their position, pick up the phone and liquidate it for them. There's always a price for getting flat-you may not like the price, but there's always a price if the market is trading. And chances are, if you blink at the first price and choose to wait for the next price, the first price was cheap.
So, I learned that markets treat all traders in like fashion. We may think the tried and true rules of trading don't apply to us for one reason or another, we may think we are bigger or faster or stronger or better prepared or smarter, but in the end game we are all traders, and all the same in the eyes of the market we are trading-its the market itself that wields the ultimate scale of justice.
I left the bank in 1991 to form a CTA. I managed offshore money for a large commodity pool until 1994. In 1995, I took a break for a few months, then leased a seat on the CME. I had always wanted to try trading on the floor, and now with the pits disappearing, I'm glad I took the time to try it. It was a fascinating experience and I am still amazed how much work it takes to stand in the pit jammed among several thousand other traders looking to ply their edges. Besides quick thinking and discipline, it takes a great deal of physical stamina. After five months, I found I was trading as much off-floor as I was in the pits, so I did not renew my lease and I returned to my trading office at home.
"If you blink at the first price and choose to wait for the next price, the first price was cheap."
"It's amazing how well prepared the great traders are before they step into that pit each morning."
What did you learn on the floor that helps you trade off-floor today?
The first thing I learned was the value of preparation and just how outstanding some of the floor traders really are. It's amazing how well prepared the great traders are before they step into that pit each morning.
Something else I learned is the importance of becoming content with what the market has to offer. For example, the first trading manager I worked for got a huge bonus and left to go trade on the floor in the currency pits. He was there for about 18 months, eventually leaving to work for Morgan Stanley in New York. The next time I saw him, I asked him why he went back to the institutional world. I didn't really understand his answer until I traded on the floor myself.
He said, for the first few months on the floor, he was making a great living by "finding dollar bills on the floor all day long." And after three or four months, he would start to "find a few five dollar bills and even a ten dollar bill here and there on the floor." Life was great. After 9 months, he started to "find five and tens more often."
After the first year, he didn't even bother looking at the one dollar bills, and just spent all his time looking for fives and tens. And then he quit looking for fives. Soon, thereafter his trading had deteriorated to the point where he wasn't effective as a floor trader any longer.
In other words, traders often get bored or dissatisfied with what the market has to offer. As an example, if I can take a few patterns and trade the E-mini S&Ps every day as a speculator and make $2K a day, that's more than $500K a year - ah, but that's only if I have the discipline to trade only those patterns and I am happy with just `printing the money every day.'
Another thing, when I worked for institutions, I thought of myself as a purist -and had some mystical idea that I could lose money on a trade and still have performed great because I lost money but performed as well as I could on that trade set up. So if I was long, and the market broke and I did a great job cutting my losses, I'd take solace and perhaps even pride in knowing I did a great job cutting the loss. That's just nonsense. To me, a losing day is a losing day. Everyone has them, but there's nothing good about them, other than their utility as learning experiences. Each day I try to remember that the exercise is to make money. I'm not there to entertain myself or amaze my clients. I'm there to keep adding to the trading kitty.
Where did you go after you left the floor?
I visited some of my institutional contacts and landed some offshore unregulated money to manage again. I continue to manage institutional money, as well as trade my own capital. Lately, my trading has focused on trading the U.S. stock index futures, though I still take swing positions in U.S. T-Bonds and currencies.
What's the physical layout of your trading room?
I have a large "L" shaped trading desk configured with three main stations. One component, is a Dell twin-Pentium III with a single 21" monitor that serves as my on-line/ internet computer. This is where I retrieve e-mail, do research using MS-Excel and other math-crunching tools. I also create charts using Advanced GET Real-time and maintain a Fibonnaci retracements and projections database. This station also has a real-time version of TradeStation 4.0 running using a Quote.com data feed.
A second workstation is comprised of a Dell server with twin 21" monitors. This machine runs E-Signal and Tradestation 4.0 and is my main data server. Its function is to capture data in TradeStation 4.0 and run TradeStation charting and a proprietary model I use to trade.
My third workstation, a Dell Pentium IV with twin 21" monitors, runs TradeStation 4.0 and CQG (Commodity-Quote Graphics) from a dedicated phone line feed. This is my back-up data and quote source. The proprietary model is also mirrored here in case the main server has a data problem. I also run several MS-Excel spreadsheets that crank out real-time indicators from this machine.
While trading, I am usually sitting in front of the first workstation, watching and charting using Advanced GET RealTime. I generally move back and forth between the 13"and 39" day-session only charts of E-mini Nasdaq and E-mini S&P 500 futures. My electronic execution platform is also on this first machine. The second machine is on the same desk to my right and I usually have a window with a set of quotes updating on the screen closest to me and a cash NDX (Nasdaq 100) chart up with the model's current position and statistics on the second screen.
The third station is on a second desk. I generally have a second quote screen on one of its twin monitors and a few of the spreadsheet generated applications on the second screen. These applications provide information like a real-time Nasdaq 100 cash index generated tick-by-tick from each stock's real-time tick activity, my own version of advances and declines, etc.
How do you prepare for a typical trading day?
My data collection and charting regimen is quite rigorous. Immediately after the T-Bonds and currencies close on the International Monetary Market (IMM exchange) at 2:00 PM CST, I begin to update charts.
I keep hand-posted daily, weekly and monthly charts for the following: U.S. T-Bond futures, a 30-year U.S. yield chart, cash and futures Dollar/ Yen, cash and futures Dollar/Swiss, cash and futures Sterling and cash and futures Dollar/EuroFX. I've been keeping these charts by hand since the early 1980's.
I also update a database on each of these instruments with swing highs and/or lows that may have been made that day, as well as upcoming daily, weekly and monthly support and resistance. I use a simple tool, FibNodes developed by Joe DiNapoli, that calculates a range of Fib relationships. I feed it minor and major swing highs and swing lows and it generates a sheet for me for the next day's trading. I use this to locate areas where there is a confluence (multiple counts of) support or resistance.
"There is something that happens as your eye processes the bar data and then your brain transmits that into a signal to draw a bar on paper."
It's rare to run across a trader who hand-charts anymore. How does hand charting make you a better trader?
There is something that happens as your eye processes the bar data and then your brain transmits that into a signal to draw a bar on paper. There's a certain intimacy that comes from hand charting many commodities. I do not find this holds true for all markets. The S&P and NDX futures, for example, are noisy to the point of being painful for me to hand chart! But for bonds, currencies and copper, for example, I really feel I trade much better because I'm in tune with some markets that are a part of the entire market. And, in those markets I hand chart, I am much more patient with entering and exiting positions-I am just a better trader because of hand charting.
How about intraday timeframes?
During the last hour of index trading, if trading permits, I update intraday charts (13", 39", 55") for the Nasdaq 100 futures and S&P futures, as well as cash Dow Industrials, Nasdaq Composite, Nasdaq _ and S&P 500 index.
Is 13" the smallest timeframe you look at?
Yes. I then go back to all of my intraday charts and re-work S/R (support & resistance) lines that I draw and use to identify what I call "trading energy areas". I draw Andrews Median Line sets, multi-pivot lines,' and simple trend lines. These lines identify S/R areas.
From each day's trading activity I note which lines "described" price. I highlight those lines while deleting lines that are either no longer relevant or that price simply ignored.'
What do you mean by "describing" price?
I see the simple lines I draw as price attractors. I expect the majority of Andrews lines I draw to be tested. On the other hand if price never interacts with the lines, they are useless, and I'm quick to jettison them. By "describing price" I mean that price moves to support and then bounces higher; or price tests support, bounces or pauses there and then plunges through and the break is a meaningful break. The longer you work with these lines, the easier it is to tell, early on, whether a line you just put on the chart is working or is useless.
Once I have finished updating all the charts, I go back to the database for each instrument, and I look for areas of confluence. I look to see where Fib numbers, S/R lines, swing tops or bottoms highs/lows are clustering. These are the energy areas I look for, areas price will generally be attracted to, but will also tend to be where failures and changes occur. Timeframe is not important for these numbers or areas. But the more these areas have been tested and survived without being violated, the more I pay attention to them. It's really less confusing than it may sound. The majority of the swing highs and lows will show up in most, if not all, timeframes and a confluence involving lines tend to be repeated in most timeframes.
Finally, its back for one last crack at the charts to add whatever energy points or confluence areas may have popped out from the updates. Recently, I have been trying to keep a web site updated regularly so I try to translate a small portion of my thoughts to the charts and commentary posted there. I find it always helps to write out my thoughts and so the web site is a good resource in that it forces me to write down some of my immediate thoughts once I finish updating the database and charts.
Multi-pivot lines are horizontal or diagonal trendlines that intersect multiple swing tops or bottoms.
This is a good example of what it means to attain formlessness and stay flexible in your analysis. - Ed. Do more of what is working, and less of what's not- J. Hart.
What do you do pre-opening?
Right after the alarm goes off in the morning, right before I shower, I go into my trading room and eyeball the charts for new highs or lows that occurred overnight in the Globex session and do new Fib calculations, projections and retracements. This allows me to let what's happened overnight "roll around in my skull" while I shower. I then -,,down to breakfast with the little ones and my wife. I don't listen to nr before or after trading. Most days, my wife will tell me that such and such happened this morning, and I won't have a clue until she tells me. I do note the days of important releases and decide beforehand whether I want a position into the numbers. There are many where I go into the major economic numbers flat.
Can we review a few trades based on the aforementioned regimen you just outlined for us?
Sure, the charts that follow illustrate my basic tactical approach to trading. Chart 145,opposite top, is a 39" S&P 500 futures chart (day session only, Globex price action is omitted)
I saw a well-defined swing from the 1143.75 low on 03/29 to the 1178.75 high on 4/02. Using the Median line technique, I bisected that swing with a line drawn from the high at 1194.50 on 3/27.
As price sagged down from the 1178.75 high, I noticed a congestion holding in the last few hours on 4/2/01 at A.
I dismissed buying that congestion because the Median lines are sloping downward, an expression of selling pressure. In a downward sloping median line structure like this I'm looking to sell short, not go long.'
As price held above the Median line during the afternoon of 4/2/01, was the formation of the congestion, to the left of Y on Chart 145, an example of price describing an energy level?
Yes. Early on 4/3/01, price gaps slightly lower on the opening of and then the bar develops into a "zoom bar" at B below the downward sloping Median Line. This is a term Dr. Andrews used to describe what Trend Dynamics calls a wide range, or thrusting price action. S&P Energy Coils and Median LInes The high of the first bar is 1148.25, the low is 1132.75. The second bar is a rally to re-test the down-sloping Median Line at 1141, see B on Chart 145,above. I shorted into the high of that second bar which was 1141.25. Once short at 1141, I could place a stop at 1149.00, three (E-mini S&P 500) ticks above the high of the day. To me, this was great trade location, as my stop was above a number of supply areas: the high of a wide-range period, above the down-sloping median line, above the high of the day, and above the swing bottom (old demand/new supply area) on the left at 1143.75.
I saw a logical profit objective in the form of a test of the lower down sloping ML, roughly 1100 to 1102 area, which was reached on 4/4/01 at C, where I exited at 1102.50.
Note that a down-sloping Median line incorporates a lower top swing structure which is either a deviation in trend if the structure was previously up; or an affirmation of lower tops in a downtrend - Ed.http://www.medianline.com/images/175_tdimage5b.gifClick To Enlarge
Were the re-tests of the center median line, the re-test you shorted and the bounce off the lower line at C examples of price describing an energy level?
Yes. Keep in mind I don't assume these price levels will be respected, but wait for evidence that the lines I'm looking at are being proven by price action, before I consider initiating a trade.
The risk-reward on this trade was about 5:1. Did you make a risk/reward calculation prior to entering that trade?
No, I used to, but now I'm more focused on just executing the trade at points where I find the trade location attractive and I like the character of the market, then managing the trade. If the risk to a logical stop is excessive I just reduce size or pass on the trade.
How do you manage a trade like this if price approaches your objective but falls short, then starts to rally back against you?
Certainly if it moves in my favor and then starts to rally abruptly 10, 12, 15 handles against my short I'm stripping off contracts on that rally, on the other hand as it approaches my objective and I see structure (swing tops) or retracement levels to lean against I start lowering stops to lock in profits above these points of resistance.
Do you use the same rules for re-entry, do you look for a re-test of an energy area perhaps a bit higher or lower then the original level, because time has elapsed and then re-enter just as you'd enter an original position?
Right. If price breaks below an energy area or congestion area, once I have taken partial profits, I maybe interested in adding or selling the retest of the lowest part of that congestion area. Obviously, it depends on many variables, and how a market is trading on any given day, but there are often re-tests of these areas, so even if you miss it once and perhaps even twice, you will find opportunities to get back in.
If I re-enter, the stops stand alone for that new position-I don't feel as if I have an extra cushion because I have already taken X number of dollars out of the market on this move before entering this new trade. The merits of a re-entry must be strong enough that it stands on it's own, or I won't take the trade.
What if price fails to hit your limit price, you're not in, and begins to reverse in the direction you want to be positioned?
I tend to enter trades at a price of my choosing, when possible, which means when I see a trade that I identify that has several degrees of confluence I usually have limit orders in the market before price even gets to those areas. I don't wait for a bounce or reversal to get in. I like to have good trade location. Having good trade location can cover many sins. When that isn't possible, I'll have a stop order working below or above the market to stop me into the market with smaller size, at least on trades that I feel are high probability trades. If I can't enter with good trade location, I usually reduce position size.
In the case of a setup that's slipping away, I may look for some type of Fib retracement to go in, but I try to balance this against chasing a market which I consider to be a breech of my trading rules.
The first trade, just below A on Chart 145, p. 289, looks like you're selling a breakout (the zoom period), you are selling a re-test but in the local context of that breakout. I've never thought of the S&P as a high-probability breakout trading market, but more of a choppy market, breakouts probably reverse more than they continue in the S&P. Would you agree?
Yes. In general, I am not a "breakout trader." It was the context of the breakout that made that first trade compelling. The breakout itself was not attractive to me as a trader. The multiple signs of weakness are what lit me up for the first trade.
The second trade (see D on Chart 145,p. 289). I consider the second trade a "lay-up." Price will often make that run to re-test the down sloping Median Line after testing the lower ML-and the trade is a very high percentage trade. You just have to take that trade. When you are wrong, it is very inexpensive and you just let the move above the Median Line and the prior swing high take you out and you then know you are back to assessing the state and context of the market going forward. If nothing else, wait for the market to begin to range and then coil again.
In any case, price re-tested the down-sloping Median Line at 1126.25 on 4/4, at D. I had sell orders at 1125.50. My stop was 1133, above the high of this rally and above the prior minor swing top and minor congestion on the left at E, which was at 1131.50 on 4/3/01. In this case I had two objectives, the first was a 61.8% retracement of the day's range, which was at 1109. My second objective was a re-test of the down sloping outer ML down in the 1088-90 are at F, which would also be a re-test of the prior major low made 3/2/01.1 took half of myposition off at 1109 and then began working a stop profit order one tick above the prior 39" bar's highs to lock in the balance of the profit. First stop profit order was at 1117.75, then I moved it to 1116.25; and, I moved it again to 1112.25, where I got stopped out and flat.
Why did you take partial profits on a 61.8% retracement of the C-to-D swing in Chart 145, the day's range on 4/4/01, yet you let the prior trade run on 4/3/01? There was a higher timeframe 61.8% retracement of the 3/22/01 to 3/27/01 swing at 1129? What was different about the contexts that encouraged you?
I think the difference lies in how I see markets in terms of expressions of energy: "spent energy" vs. "stored energy". The first trade came right after the market had been in a trading range and had stored energy in the coiling range (A-to-Y on Chart 145, p. 289). The second trade came after the market had spent a great deal of energy (Y-to-C) and had little or no motion that would indicate it was re-storing energy. Once price tested the lower down-sloping ML, there was a strong rally. The price action appeared to act more like a two-way trading range day as opposed to a one-way trend day. I decided to emphasize taking quick profits, especially if price was unable to break below the early morning low of 1098.50 at C.
In a way, your style of trading seems remarkable simple.
Part of it is that simple. I determined the macro-direction of the market, which in my mind was clearly down; assessed the current state, heeding the overhead gap above that it could not fill. It had been in a trading range for three days and on the fourth day, price retested the top of that trading range at Z, and the bottom of the open gap and failed causing a sell off, which terminated in a tight energy coil for the second half of the day, right at the low of the trading range (A-to-Y) and just above both the current Median Line and the Major Median Line something had to give, and when it did, the market had a tremendous amount of energy stored, both from the three day trading range and the tight energy coil from the second half of the fourth day. Likely conclusion: On the morning of the fifth day ,1 saw every indication that the state of the market was changing: Price had broken out of the energy coil and the trading range and zoomed below two important Median Lines-and I can't stress this enough, the market had the energy stored to make a dramatic move. So I was eager to enter this market short, everything was in place for a major move.
I see, but these trades occur in a larger context where we had multiple large timeframes in running moves to the downside. How might you trade markets with a different character, like Copper, or Bonds, or a context that is choppier?
Well, I trade every market based on the state and context of that market at the time I am trading it. For example, I have a good set of tools for range trading. I call those tools "hand-to-hand combat tools." One example would be what I call trading a "rolling chop," which is often found in Copper, for example (see Chart 146 below). This type of market doesn't coil or store energy, and it doesn't range trade, per se. Instead, in a downward sloping rolling chop, price sells off for three or four days, stopping out any bottom picking long positions and getting many position traders short on the move to new lows.http://www.medianline.com/images/175_tdimage7.gifClick To Enlarge
Then price rallies sharply, not to new highs, but to a high enough level that most casual position traders stop themselves out of their short positions. As soon as the stop buying is finished, price heads to new lows again. The trick to trading this "rolling chop"? Know before you initiate a trade there will be these rallies (such as at G, I, K & O) and so look to lock in profits on the selloffs (such as at H, J, L, N & P) and only sell into resistance-never chase the market lower. And use lower leverage, so that if you do get out of step with the market in this dance up and down, you can survive a test of at least one prior swing high.
How discretionary is your trading?
I am a discretionary trader, but I would say that I am also a fairly regimented trader. Over the years, I have refined my trading style so that I know my trading tools very well. I think a lot of traders make a big mistake in jumping from one tool to another in a ceaseless search for the Holy Grail. They never really master the tools they have and finally bust out. My advice is to spend those years getting to know your tools really well. There are no single magical set of tools. I know many professional traders and it's often uncanny how we end up initiating trades in the same general area, even though we're using different tool sets.
"My advice is to spend those years getting to know your tools really well."
How would you describe your money management guidelines?
I always have a stop in place. I usually start with a disaster stop. I rarely risk more than 2 percent of capital on a position and that disaster stop is rarely hit. I like to take money off of the table and once trades become profitable and I have some time invested in them, I am careful to keep the trades from turning into losses. If I violate my trading rules, I always take a minimum of three trading days away from the markets-to clear my mind. I would always rather under-leverage than over-leverage. I like to trade about I E-mini S&P for every $15K . I also use what I call equivalent risk, meaning that I keep a spreadsheet matrix with current ATR-based (average true range) volatility for the instruments I trade. If I trade 15 bonds, according to that matrix, it is equal to X number of S&Ps or X number of currency contracts. I adjust the size of the trades so that the risk for any one position equals a maximum of 2 percent of capital.
"If I can't get trade location that's ideal, I generally pass on the trade."
Do you have other trading rules?
I always try to take trades with good trade location. If I can't get a trade location that's ideal, I generally pass on the trade. If I do take a trade with trade location that is acceptable, but not as ideal as I originally planned, I trade with less leverage. I never take trades where I can't define both the stop area that is acceptable and at least one area that is a good logical profit objective. Never chase price. There will always be another trade setup. When I am not in rhythm with the market, I don't trade. Forcing trades is one of the worst sins. Time invested in trades is expensive. If a trade is becoming stale and not progressing as I thought it would when I put the position on, it's best to go flat. Being flat can be a much more creative state of mind, and stale trades just tie up your capital and your mind.
Finally, If I don't feel good, I don't trade. And I mean emotionally good, physically good-any distractions mean that I am not at my very best. And to trade these markets day in and day out, I have to be ready, with good tools and a good mind.
"...it's very difficult to go from trading money for the house to being the house-that is, to trading your own cash."
How important are psychology issues, mental attitude, etc.?
Mental attitude is extremely important. If I feel defeated, I am defeated. Attention to detail and being well-prepared springs to mind as other things affected by your mental state. I might add that it's very difficult to go from trading money for the house to being the house that is, to trading your own cash. I used to tell traders that worked for me that if they were busy worrying about making the mortgage payments, they'd never trade successfully. I saw it nearly every year as young traders approached bonus time and they and their wives started mentally planning how they'd spend their soon-to-come bonus-and the pressure would mount on them not to lose money. That killed many young traders at banks, and even more on the floor of the exchanges.
How have you integrated Trend Dynamics into your trading plan?
In two important ways, first the way Trend Dynamics teaches one to correlate multiple -timeframes. Before Trend Dynamics, I did not understand the synergy and interaction of timeframes. In addition, Trend Dynamics has helped me to identify the kind of price action in the larger timeframes that indicates reversals in trend which affects my larger contextual view of the markets.
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Article By Timothy Morge http://www.medianline.com/images/232_sfo_logosub.jpgX Marks The Trading Spot:
Identify Price Targets With Intersecting Median Lines
By Timothy Morge
If only there was a map that led us along the road to riches. Mapquest won抰 provide specific trading directions, but charts can point out general directions.
There抯 a growing group of veteran floor traders in Chicago that have switched to looking and trading the markets in a whole new light. They抮e what other locals are calling the 揻orkers,?traders that use 損itchforks?or median lines as their principal trading tool. The group has grown large enough that they抳e begun proudly wearing buttons reading, 揑抦 a forker!?Now the Chicago Mercantile Exchange (CME) co-sponsors seminars that teach this simple but powerful tool that is so effective when used to day trade markets in an off-floor environment.
In the CME trading pits, these were veterans of daily battles, where each local had to fight, tooth and nail, for profits. In my seminar, I begin by reminding them of two of their favorite childhood games: hunting for buried treasure and hide and seek. To find out how remembering these childhood games can translate into making consistent profits in the currency markets, read on.
Median lines can be used to find high-probability trade setups that repeat over and over again. These tools work across the board in all timeframes and on all tradable instruments ?including stock index, interest rate and currency futures, and individual stocks and their ETF cousins ?once you learn some basic methodology.
My first rule when taking a trade is no edge, no trade! I see too many traders simply selling or buying each time price approaches the median line or one of its median line parallels. Dr. Alan Andrews, the inventor of median lines, taught that three things could occur at the median line or at its parallels. Price will reverse, gap through the line or will congest. Do the math and see that simply buying or selling at each test of the lines has about a 50-percent probability of being profitable. However, there are ways to use these tools that give reliable, repeatable results.
Starting Out
Median lines are simple to draw. Choose a high, low and high pivot or choose a low, high and low pivot. It抯 best to start with what looks to be an important swing high or low. (See Figure 1 for points labeled A, B and C for an example. Look at the blue lines for this explanation.)
Once you have chosen three points (a high, a low and a high), connect the last two points with a line . Find the mid-point of the line connecting the two points. Then draw a line from the first through the mid-point of the connecting line between the two points. Extend this line (now called a median line) out in space. Similarly, draw lines parallel to the median line that begins at the point and then the point. You now should have what many call a pitchfork. The line that starts at the upper pivot and runs parallel to the median line is called the upper median line; the line that starts at the lower pivot is called the lower median line.
Finding Treasure
To teach traders how to find high-probability trade setups, I speak about the market in terms of the energy that price carries as it moves forward. 0Median lines and their parallels are areas where price may run out of energy, so I begin with these areas as my starting point when looking for trade setups. Just thinking that price may run out of energy isn抰 enough for me, however; I want to see more before I put any of my money on the line.
One of the easiest high-probability trade setups to identify are areas where two median lines cross; a zone called 揷onfluence.?It抯 best if these crossing lines 搊ppose,?meaning one has an upward slope and one has a downward slope. In essence, once you find the dominant median lines or pitchforks for a given chart, it抯 just like reading a childhood treasure map: X marks the spot!
Another way to form confluence is to use major Fibonacci retracements or projections if one of these areas is close to an area where price will likely intersect with the median line or its parallels. Of course, if I can identify an area where I have opposing lines crossing, along with a major Fibonacci retracement or projection, I like the trade setup even better. If all of this sounds as if I set very high standards for acceptable trade entry setups, it抯 because I want my trade entries to have a probability of success of seventy percent or higher.
Figure 1 shows an area of confluence, where X marks the spot. Let抯 see how this could be used to set up a potential trade in the euro currency. The euro made a nice run higher before selling off to test the 61.8-percent retracement from the high at Pivot B to the low at pivot A. Once prices held at this level ?leaving a double bottom ?they climbed higher, retesting the prior high at pivot B. During the first 15 minutes of the CME day pit session, prices tried to test the prior highs a third time but found good sellers, and that bar closed near its lows. As this first bar of the day session closes, I draw in a new red down-sloping median line or pitchfork, which shows me the probable direction of price if the euro had just seen a change in trend or direction. The slope of this red down-sloping median line also tells me just how fast price should travel, if indeed the trend has changed.
The Trade Entry Spot
Now look to the right of the last bar on Figure 1 and you抣l see two lines that intersect, one a blue up-sloping median line and the other, a red down-sloping upper median line parallel. If price tests the area of confluence where these opposing lines cross at 129.56, it抯 highly likely that price will be contained. Price should run out of directional energy at this area roughly 75 to 80 percent of the time, if price gets there. It doesn抰 take much imagination to see the X that marks the spot here! The treasure comes in the form of a high-probability trade setup.http://www.medianline.com/images/175_morge_chart1.jpgClick To Enlarge
The area of confluence, where these two opposing lines intersect, occurs at 129.56, and it also has a time element to it: If price tests this area two bars from now, it will be running into opposing forces right at the time both lines predict it should run out of directional energy, and that would further enhance the probable outcome of this trade. Because this is such a high-probability trade setup, I抣l be willing to get short the euro at three ticks below this area of confluence, instead of right at the confluence. So my limit sell order will go at 129.53.
Transmit Both Orders Simultaneously
Here is the second rule: Never enter a trade without entering a stop-loss order at the same time you enter your limit entry order. The last thing I want to do is put in a limit sell order, and just as I type it in, watch the market zoom through where I would put in my stop loss order before I can even enter it. So when using an electronic platform, type in both orders, hold each until both are ready to go, and then transmit them at the same time.
Hiding Stops
Where should the stop-loss order be placed? Well, I抳e already showed you how I play hunting for buried treasure. Now let抯 remember how to play hide and seek. In this game, you go hide while someone else counts to 25, and then he/she tries to find you.
In many senses, this is a good way to think about your stop-loss placement. There are going to be people looking for your stop, so rather than using arbitrary or 揷ash-amount?stops, always try to find a market formation behind which you can 揾ide?your stop-loss order. In this case, there will be sellers at or near the area of confluence that we are trying to sell. If price gets above this area of opposing median lines, the next area to hide stops would be the high at Pivot B, which was just re-tested on the opening. So if price manages to get back up there, this area will provide some protection for us to hide behind ?in the form of sellers looking to sell the test of the prior highs, as well as the high of this morning抯 session. I抣l 揾ide?my initial stop loss order at 129.66, three ticks above the morning high and retest of the prior swing high.
What抯 the Target?
The last important piece of an initial trade setup plan is the risk/reward ratio. I personally don抰 take a trade unless I am making a minimum of two dollars for every dollar I risk. To find the risk reward/ratio of this trade, I first must identify a profit target. The most logical profit target is a test of the red down-sloping lower median line parallel. I expect price will test and break through the up-sloping blue median line because it retested the prior swing high on the opening, and if the high of the day holds, a major move to the downside should unfold.
To calculate where price would intersect with the red down-sloping lower median line parallel, I look at the recent size of average bars, and then overlapping them about 30 percent, I use my cursor to see how far price will likely move to the right as it travels low enough to intersect with the red lower median line parallel. That comes out to roughly 128.70.
Doing the Math
Now let抯 calculate the risk/reward ratio. I抦 willing to sell at three ticks above the intersection of opposing lines, at 129.53. My initial stop loss is at 129.66, so I am willing to risk 13 ticks on this trade. If I get filled, my initial profit target is at 128.70. I am looking to make 83 ticks on this trade. That means my risk/reward ratio works out to 83/13, which is roughly 6.4, a more-than-acceptable ratio. I enter my limit sell order at 129.53 and my initial stop loss order at 129.66 at the same time. Note that I do not enter my profit order, because I have no position yet.
The Trade Unfolds
Two bars later, price rallies to and stops right where X marks the spot, getting me short euro at 129.53 (see Figure 2). Price runs out of directional energy right where it should and turns lower, closing on its low. As soon as I confirm that I am short euro, I put in my profit order, a limit buy order at 128.70. Price makes a narrow range bar and then spikes lower. It is testing the red down-sloping median line, which is a potential area for price to run out of downside directional energy, but not the area where I think price will run out of energy. But when price then makes two bars that are well above this area, with about the same range and alternating closes, I sit up and take a closer look at the chart. Can I move my initial stop-loss order closer to the current price action without getting too close to the inherent noise of this market?
I note that the last bar formed the second of two bars with the same high at 129.47, something chartists call 揹ouble tops.?Double tops also are areas where new traders will likely have sell orders resting in the market, because this area is seen as an area of overhead resistance. There also is overhead resistance at the red down-sloping median line parallel. Because price closed on its low during the last bar, I am going to hide my stop-profit order three ticks above the just formed double tops, at 129.50 (marked Cancel Profit Stop 1 on Figure 2). I now am playing with the market抯 money, and that抯 always the first goal once I identify and enter an acceptable trade. I must work my way to break even or better stop-loss orders as quickly as possible without getting too near the noise inherent in the market.http://www.medianline.com/images/175_morge_chart2.jpgClick To Enlarge
Price again spikes lower, testing the down-sloping red median line, but so far it is unable to close below this line. Price then consolidates, forming an energy coil, which indicates that price is restoring energy. Then, price did run out of energy right where the upper median line parallel predicted it would.
The next bar is a narrow range bar that closes below the low of the wide range bar that just tested the red upper median line parallel. Because a narrow range bar is a warning sign that price is again restoring energy, I reevaluate my stop-profit order. Now that price has tested the upper median line parallel once, I am willing to hide behind the 129.40 high of that wide range bar, so I move my stop-profit order down to three ticks above this high, to 129.43 (Cancel Profit Stop 2). If price climbs above the just-tested red upper median line parallel, I抦 more than willing to exit this trade via a stop-profit order and keep the potential ten ticks of profit I抣l still have in this trade.
Locking in More Profit
Price then makes two very wide-range spike bars lower. The first wide-range bar tests the red median line again, and the second wide-range bar spikes through the red median line and closes well below it. Once this second wide-range bar closes, I immediately move my stop-profit order to three ticks above the 129.05 high of the just-closed wide-range bar (Cancel Profit Stop 3 at 129.08). Why? I now have more than 60 ticks of potential profit in this trade, and price has made the majority of the move in two spike bars.
If price retraces higher just as fast, I must protect some of these profits. Readers can see that price tested the red down-sloping median line three times before finally breaking and closing below it. So I think I can 揾ide?just above this median line, which comes in at 129.01. I am 揵oxing in?profit, using market formations to hide my stop orders, working my way towards my profit target at 128.70.
Two bars later, price tests the red down-sloping lower median line parallel, in the process filling my profit order at 128.70. Once I confirm that my profit order has been filled, I cancel my stop-profit order and double check that I am flat. I net 83 ticks on this trade, which is $1,037.50 per contract before brokerage fees.
Putting the Trade Together
The keys to this trade are easy as one, two, three: 1) Identify a high-probability trade setup (X marks the spot!) 2) Find market formations to 揾ide?initial stop behind and 3) Make certain that the trade setup is above minimum acceptable risk/reward ratio of 2:1. Also, make sure the size of the potential loss per contract will not wipe you out.
These trade setups repeat over and over across various markets. Once you learn to identify them and also exhibit the patience for them to unfold, you will see just how powerful these simple trading tools are. Just ask the 揻orkers,?and I抦 sure they抣l send you a button reading, 揑抦 a forker!?/td>
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Jan. 5, 2005Next Archive
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January 5, 2005 Comments: Euro FX futures have been trading lower since hitting a new contract high on 12/30 and I have been looking for a low-risk entry area to initiate both an intra-day and overnight short position. We have one open gap above the market and another that was barely filled, so this has been a strong down trend. I don't expect it to end with a "V" bottom; Instead, I expect a series of waterfall-like sell-offs until everyone gets their chance to get short...
The traditional Median Line on this fifteen minute chart has done a good job describing price during this run lower. Note the tests of both the Lower Median Line and the tests of the Median Line itself: Price interacted at these lines and bounced, which tells me this set of lines is tuned into the same frequency as this market. For a low-risk short entry, I calculate where price will hit the Upper Median Line and enter a limit order to go short at that price. I also enter a stop-loss order at the same time to limit my risk, in case the market begins to run higher.
Here's an important tip that may seem obvious, but is easily overlooked: On these short-term charts, the lines you are trading from are often at sharp angles, which means that the entry price changes as each bar updates. Make certain you know the slope of the line you are trading from and recalculate your entry price at the end of each bar and then change your entry order accordingly.
Mid-morning, I get filled on my order to sell Euro FX futures at 133.10 and I immediately double check that my 133.25 stop-loss order is still in place and being worked. Note that I do not have a Fib number to use as confluence with the Upper Median Line sell in this example. But I still liked the entry because the Median Line had been doing such a good job describing price and also because there is an old-timers bit of currency lore running around inside my head: Although most traders think futures prices tend to respect the "big handle" numbers, as in "135.00 and 136.00," currencies tend to gravitate towards 80 and 20, as in "132.80 and 133.20" for support and resistance. Why? It has to do with the "old days," when we were bank cash traders and made quotes to each other over first teletypes and then telephones. Prices were often quoted wide and those two areas became ingrained as places where support and resistance would show up, instead of the more obvious "big handle" areas. But I digress...
I am now short at 133.10 and I am working a stop-loss at 1.3325. Where do I want to look for profits in this situation? The morning low was at 132.22 and the high was at 133.12. The 50 percent retracement of the day is 132.67, so I enter a profit order at 132.70 for the intra-day portion of the position. That gives me a very nice risk/reward ratio on the trade and because I know that these particular types of Median Line setups have a success ratio above 75 percent in my own trading, this is a trade well worth waiting for in my book!
Late in the afternoon session, my profit target is hit at 132.70 and I then cancel my stop-loss orders for the intra-day portion of the trade and check out with my broker to make certain my trade fills, both price and quantity, match what he has for me. For the overnight half of the position, I'll take a profit if prices test the Median Line on the downside, which comes in at roughly 131.70 on the open tomorrow morning, because I expect a series of waterfall moves down, and there should be other high-probability areas to get short again IF my profit target is met on this particular trade. My pre-opening order for tomorrow morning is to take profits on my short position at 131.75 on a limit basis, and once the market opens, if I haven't been stopped out or if my profit order hasn't been hit, I'll snug down my stop-loss order to protect profits.
Act, don't Re-act!
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Jan. 6, 2005Previous Archive Next Archive
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January 6, 2005 Comments: Euro FX futures gapped open lower, right at the down sloping Median Line. If you recall yesterday's commentary, I was short the Euro FX futures at 133.10, with a stop at 133.25. I took half of the position off at the 50 PCT retracement at 132.70 and let the rest ride overnight, looking for a test of the down sloping Median Line. As I stated yesterday, my profit order was at 131.75 and I was filled on the open, for a nice profit. I called my broker, reconfirmed the fill and confirmed that the fill made me flat, then double checked that all orders were now cancelled.
Price worked its way higher and approached the Upper Median Line Parallel at the 132.22-25 area. As I said yesterday, I am expecting a series of waterfall moves if the Euro FX futures are to continue lower, until a really ugly spike lower occurs, drawing in the "last minute panic sellers," and I contemplate getting short again at the 132.22 level. I have the order typed in and...well, the market doesn't "feel" right to me. Maybe its the nice overnight profit sitting in my pocket, maybe it's just that the market is acting a bit lethargic and trading slow.
In all honesty, it's because the down sloping Median Line has been describing price, but has also been in real danger of having price "drifting" to the right of its boundaries over the past few days. This happens because the slope of the Median Line is steep enough that when the number of new sellers begins to slow enough, price no longer descends as fast, so time moves price out of the Median Line, even though price may still be in the same down trend. This drift is common and it is why we have developed different ways to use the same tools--for example, drawing a "second pivot" Median Line once price drifts out of the original Median Line. And of course, the Modified Schiff Median Line is one of the original solutions for dealing with price drift because of steep price slope, but neither of these two lines help me much, so I don't "like" the trade location and I pass on getting short at 132.22.
As you can see, 132.22 was the *Perfect* place to get short for a quick scalp and from there, price moves down to nearly test the morning's low. If you HAD gotten short, you would have had two choices: take profits as price approaches the 131.75 area or stay short, trail stops and look for a re-test of the down sloping Median Line, which at this point would now be down at 131.25.
Remember me pointing out that you have to watch the slope on these lines and adjust your support and resistance areas accordingly after every bar closes? From the open until roughly 10 am, the interaction point of the Median Line with price has moved from 131.75 down 50 points to 131.25. Being aware, in real-time, of these little things is what makes or breaks traders.
The Euro FX futures test the early morning session's low and then turn right around. As this bounce starts to develop, I immediately think that it's likely an energy coil is forming. Price has come a long way in a short period of time and it needs a rest. It won't surprise me in the least if it paused here to regain energy before its next move.
And price does just that. It scoots higher, re-testing the highs at 132.25 and in the process, drifting to the right of the Median Line set I had been working with. Maybe my intuitions weren't so bad after all...Then price sold off to bounce its way lower along the outside of the down sloping Upper Median Line Parallel, eventually making a new low for the day, but then quickly moving back up into what I marked as the energy coil .
If you recognized the energy coil forming, you could have range traded it quite effectively. This market is notorious for these consolidation periods and if you are nimble and use stops and profit orders effectively, you can tear out a nice chunk of change trading these ranges while you wait for the motor to get recharged. I'll soon have a nice small "chapter book" available on the web site dealing specifically with trading energy coils.
Someone asked if I watch cash FX charts at all or only the futures markets...Here's a 60 minute chart of the cash Euro FX against the Dollar:
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Price is in a gorgeous down trend, but again, I get a sense that we have tested that Upper Median Line Parallel too many times and made too little progress down into and past the Median Line itself--in short, though this chart looks like price is closing poised at the perfect place to enter a short position, I am leery, because I sense a drift by price to the right is as likely as a move straight down from here.
If you look at the day-only futures chart and the 24 hour cash chart, you can get a sense that in this case, I am using the day-only futures chart to temper the view I have when looking at the 24 hour cash chart. The two work hand in hand, and the lead does pass back and forth. The clues can be subtle, but one often tips its hand before the other.
We'll see if price shoots lower from here, as the cash chart suggests, or consolidates further, as the day-only futures chart suggests to me, with the formation of the energy coil. Please note: I did not become bullish...I became cautious of new short positions at these levels until I see further price action unfolding. There is a very big difference!
Act, don't Re-act!