一个笨蛋的股指交易记录-------地狱级炒手

hefeiddd

Apr. 13, 2005

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April 13, 2005 Comments: One of the forum's active members, Laura, asked recently if I have contingency plans in place in case my entry ideas don't work out. And of course, if I see a secondary way to enter a market, I'll use that as a backup. And since she asked that question earlier in the week, I have had that rattling around in my head, trying to remember to show a secondary entry approach the next time I see one when diagramming out a trade to post here. And of course, like all things in life, you get what you get, not what you ask for. The trade featured today has a contingency twist in it, Laura, but not exactly what you had in mind. But I'll keep it in the back of my head as I trade and the next time I see two possible entries, I'll make sure I show my back up plan. Note that the first chart is the sixty minute E*Mini S&P futures. It's a gorgeous Energy Coil that's gone on for TOO long. But remember this when trading in these large Energy Coils: They are ranges until proven otherwise. And they can be very stubborn. So before the market opened I was eyeing the up side test of this wonderful looking range or Energy Coil, and I was hoping for an opportunity to get short at the test of the top of the Coil. And I started drawing lines: Median Lines, Schiff Median Lines, channels, Action Reaction Lines, Trend Lines...You name it, I tried it and nothing hit the mark for a solid entry set up before the bell. I just couldn't find a thing I liked. Not on the 60 minute charts or the fifteen minute charts. Maybe I'd see something after the open, but before the open, other than a direct test of the upper boundaries of the Energy Coil and a failure there, I didn't see a thing! Now normally, when a market hits me as offering nothing, I don't pay too much attention to it other than a quick glance at the open, in case a surprise comes along. But since we know the general areas of the opens these days [because of active electronic trading before the pit session], there's rarely a surprise. So with a few minutes left to the opening, I pulled up the E*Mini Russell chart, not really expecting to see much. And it was a chart of a different color! Take a look at what I immediately saw:

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Unlike the S&Ps, the Russells hadn't yet approached their recent swing highs. In fact, they flirted with the 61.8 percent retracement area late yesterday, but failed to make any headway there on the close. And although price closed above the red down sloping Upper Median Line Parallel, the pre-market prices made it clear it wasn't likely they were going to stay up above this line, at least for the first bar of the open. And if you look closely at this chart, you can see the confluence of the pink first warning line drawn from the most active shorter time frame Median Line and the red Upper Median Line Parallel. These areas of confluence are often turning points--Even if price overshoots them just a touch. When you see those areas of confluence, don't blindly step in front of a train, but if price has already exceeded them, look for a price failure, and if it happens, there is generally a good move in the opposite direction about to unfold in front of your eyes. So mark them and watch them closely and be ready! Now, let's drop down in time frame to the fifteen minute level and see what it looks like:

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Looking at the fifteen minute chart, you can see I left out the warning line [you can imagine it in your head or flip back to the 60 minute chart if you need to see it again] to keep the chart easier to read for most of you. The hesitancy of price at the 61.8 percent level is evident, and even more so if you sat there viewing this chart, knowing where the Globex session futures were trading. But I'll need price to open to find an entry set up, if indeed there is one. Let's watch the open:

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Price gaps open lower, just above the Upper Median Line Parallel. Before someone asks, is this first bar considered a re-test of a zoomed Upper Median Line Parallel? No, I don't consider it one. I like my re-tests to be quick and clean. And a zoom that comes fairly late in the day and doesn't get an immediate re-test doesn't work very well, at least in my experience. And if you really zero in on the last handful of bars of yesterday's action, instead of a clean zoom, you had price barely inching above the Upper Median Line Parallel, then a close quite a bit back below it, then a close back above the same Upper Median Line Parallel. I call those alternating closes, and they are generally more indicative of a market running on empty, looking for a turn. On the open today, we get more of the same: A weak close just above the Upper Median Line Parallel, and price is still well below the swing high made late yesterday at the 61.8 percent swing retracement area. I think the most important thing to note here is that the locals in the pit had just enough strength to push price up to briefly trade at the Gap Filler Line but couldn't hold there for more than a minute or so before price turned back down: They went there looking for stops and finding none, they turned their positions around, looking for a test of the down side. Price makes a nice wider range bar lower, closing back below the Upper Median Line Parallel. And because price started above the Upper Median Line Parallel, you can think of this bar as marking a Zoom Failure [Or if you want to be "pure," you can think of this bar as being a zoom lower of the Upper Median Line Parallel...but we're splitting hairs]. In any event, it is a price failure at the Upper Median Line Parallel, at the gap higher opening and at the 61.8 percent retracement of the swing high. Put these three together, along with the failure of the S&P market to test the top of the Energy Coil it's been trading in, and I was looking for a sell entry. The most likely would be a pull back to re-test the Upper Median Line Parallel, so let's diagram that and see if the risk reward makes sense:

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I'm looking to sell a re-test of the red down sloping Upper Median Line Parallel, which comes in at 612.60. I have two choices for an initial stop loss: I can put it three ticks above the high of the day or I can put it three ticks above the yesterday's high, which is also above the 61.8 percent retracement of the larger swing. The high yesterday was 615.70, so that initial stop would be at 616.00, or 3.4 Russell points. To me, that seems like quite a large stop, so I drop down to look at the current high of the day. That's 613.80 and three ticks above that would be at 614.10, which would be a stop loss of 1.5 Russell points, which is more in line with my like for this trade. Why? I'm not particularly happy with the way price has danced around this Upper Median Line Parallel and the one thing I don't want to do is enter into a position and find myself sitting while price dances around it some more, in an Energy Coil, before taking off with renewed energy in the opposite direction of my entry...I decide the closer stop is more to my liking, although it does seem awful close to the action. But as I said, if this turns into a sloppy morning session, I'd rather get stopped out quick and with as little damage as possible. I'm always trying to play "What if..." The initial profit target is a test of the lower time frame Upper Median Line Parallel, which is colored in a kind of "hot pink" here. Why do I think this set of lines is still in play? Go back to the 60 minute chart of the E*Mini Russell futures at the top of the page and look again at how price was contained by this Median Line set. And the failure this morning is coming right at the intersection of the first warning line of the Median Line set and the longer term Upper Median Line Parallel [if this indeed turns out to be a price failure to the down side]. In my opinion, this Median Line set still reflects price's frequencies and will project where price should run out of down side energy. Using that as my guide, I get a profit target of 605, and that would give me a risk reward above 7, which is quite nice. The other initial stop would give us an acceptable 2.1, but I don't feel like risking over 3 Russell points on this trade! So I'll choose the closer initial stop loss and take my chances that the failure is real, even though the stop is a tad close to the noise for my comfort. I call my broker and enter an order to sell E*Mini Russells at a limit of 612.60, which is where price should intersect with the Upper Median Line Parallel. I then also enter my initial stop loss order, at 614.10, three ticks above the day's high. And remember, I am able both of these sell orders into the market at the same time because price is currently trading below both of my orders, so by definition, price has to move through my limit sell order, getting me short, before it can get to my stop loss order at 614.10. So I put my safety net stop loss order into the market at the same time I place my limit entry order and that limits my risk as much as possible. Let's see what price gives us now:

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Price makes quite a pull back higher, almost testing the high of the day while getting me short at our level of 612.60! For a brief moment, it looks like I may get stopped out right after I get filled on my limit sell entry order, but then price runs out of energy and trades lower as fast as it went up, closing near the low of the bar that got me short! That's the sort of price failure bar I like to see when entering a short entry, in case any of you wondered. I like to see price "stretch" itself, expending its energy, and then falling "back to earth" once the push is over. Once I see my price print on the screen, I check to see that I was filled on my limit sell order and then that my broker is working my initial stop loss order. Once he confirms both, I give him my profit order at 605 and I make it "OCO," meaning, One Cancels the Other, so that if one of the orders is filled, the other is immediately cancelled.

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Price moves lower for the next two bars, and there's little to do except watch for opportunities to further limit my risk or to lock in some potential profits. But neither options are available yet, so I watch patiently while price unfolds. The next bar has a narrower range and is an inside higher bar, meaning it's high was lower than the prior bar's high and its low was higher than the prior bar's low. I'll watch the next few bars carefully, to see if an Energy Coil is forming.

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The next bar climbs higher, opening on its lows and ending on its highs. But that climb higher is erased immediately by a "mirror" bar that looks like the reverse of the previous bar: It's about the same size in range, it opened on its highs and closed on its lows. And these near-twin bars left a nice double top. The next bar trades and closes lower, but it does so in a very narrow range. I am still wary an Energy Coil is forming and when I see the small range bar close, I decide it's time to snug my stops closer. I am eyeing the double tops and consider putting my stop profit order three ticks above the double tops, but instead decide to move the stop to break even, since that would take a move above both the double tops and the Upper Median Line Parallel to stop me out. I call my broker and cancel my initial stop and replace it with a new stop order at break even, 612.60.

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Price does form an Energy Coil and for the next four bars, price trades in this narrow range, re-storing energy.I've already prepared for the possibility that it may shoot out of this Energy Coil to the upside by moving my initial stop loss to a break even stop order, so I don't have to worry as I watch and wait for price to make its move out of the Energy Coil once it has re-charged. It finally does break out, to the down side, with a wide range bar that makes nice new lows and closes in the lower third of its range. The next bar also makes a new low, but is another narrow range bar, so I again play, "What if..." and wonder if price will pause again, forming another Energy Coil before moving on again. As this last bar closes, I have roughly six E*Mini Russell points in potential profits sitting in this trade and I am approaching my profit target quickly. My first thought is to snug my stop loss order closer again to the action, and I do so by moving my break even stop down to three ticks above the swing high formed as the top of the just-finished Energy Coil, at 610.50. Then I recalculate my profit target and see that price should intersect with the Upper Median Line Parallel at 604 now, so I also adjust my profit order accordingly. Now I'll just have to see what price does next.

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Well, we're right back in an Energy Coil! Price is just moving lower in a stop and go pattern, spending a little energy and then stopping and re-storing that spent energy before moving on.After price makes five similarly sized bars within the Energy Coil, the last one peeks below the bottom of the Energy Coil, but still closes back within the Energy Coil. I am a little leery again of price spiking back higher, and being so close to my profit target, I am reluctant to give much of the potential profits I have sitting on the table back to the markets. As this last bar closes, I snug my stop profit order to three ticks above the high of the current Energy Coil, which means I am now working a stop profit order of 607.10. A move that stops me out will have broken out of the Energy Coil and also taken out the high of the small bar made just prior to the Energy Coil. If price comes that far above the Energy Coil, I think it may find some up side momentum and I'd rather book my profits. Even if I get profit stopped out here, I'll have made 5 1/2 E*Mini Russell points, which isn't a bad day's work. I then recalculate my profit order and move it to 603, which is where price would intersect with the Upper Median Line Parallel. Now I just have to wait and see how this Energy Coil resolves:

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The next two bars each make new lows and during the second bar, my profit target is met. When I see my price print, I call my broker and double check that I was indeed filled on my profit order at 603. Once that's confirmed, I double check that he cancelled my stop profit order and then I make him repeat my normal end of day mantra: "You're flat and working nothing." I netted 9.6 Russell points on this trade per contract, which is nice by any measure. Remember that this trade idea began when I wanted to get short E*Mini S&Ps but couldn't find any trade location that looked remotely interesting to me. By switching vehicles [or markets] but staying with a U.S. stock index future, I quickly found a trade set up that I liked and that fit my risk reward requirements. There's always more than one way to skin a cat, so to speak...I hope you all find this trade example both interesting and informative. And of course, I wish you all good trading! Act, don't Re-act!

hefeiddd

Apr. 19, 2005

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April 19, 2005 Comments: Looking at the chart above, you can see that after a sharp sell off last week, S&Ps rallied yesterday, leaving multiple bottoms on the fifteen minute chart. The length and severity of the Energy Coil I showed on last week's 60 minute charts makes me believe this rally out of the hole will not be a major rally, and any crack that appears should then be exploited as a new selling opportunity. As I prepared for this morning's opening, I knew that price would likely gap open higher. The question was: Did price have enough up side energy left to test the blue Upper Median Line Parallel, it's "most probable" line?

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You can see that price did indeed gap open higher above the blue up sloping Median Line and should now be headed to the blue up sloping Median Line Parallel. Price closed above the Median Line twice but after the third bar made a new high for the day, it could not hold above the blue up sloping Median Line and closed below it, near the low of its range. And although the next bar peeked back above the Median Line, it was unable to make a new high and then closed below the Median Line, unchanged, in the lower third of its range. This looked like a price failure to me! Because price climbed above the blue Median Line and closed above it, it *should* make it to the Upper Median Line Parallel about 80 percent of the time. But after two closes above the Median Line, two closes back below the Median Line had me thinking of Hagopian's Rule: If price doesn't make it to its "most probable" line, it is likely due for an extended run in the opposite direction. I added a red down sloping Median Line Set, using the day's high as the last alternating pivot:

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Looking at the fifteen minute chart, price has three levels of overhead resistance: First, it must get back above the resistance formed by the blue up sloping Median Line. Second, it must climb above the resistance formed by the red down sloping Upper Median Line Parallel. And third, it will find its final resistance at the high made earlier this morning. As the last bar closed below the Median Line, I began forming a plan for a short set up in my mind. I'll diagram it for you:

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I want to sell a re-test of the blue up sloping Median Line. If price intersected with the Median Line during the next bar, it would happen at 1154.25. With the additional overhead resistance of the red Upper Median Line Parallel and the high of the day, I am willing to get short three ticks below this intersection level, at 1153.50. I'll place my initial stop loss three ticks above the morning high of 1155, which is now a swing high, at 1155.75. And because price failed to test the blue up sloping Median Line Parallel, I am looking for price to go further than its first possible target, which would be the blue up sloping Lower Median Line. Instead, I am looking for price to at least make it to the red down sloping Median Line, its "most probable" line. That makes my initial profit target 1148. That means I am risking 2 1/4 E*Mini S&P points to make at least 5 1/2 E*Mini S&P points.[Why do I say "at least?" Remember that the red Median Line is a down sloping line, so with the closing of each bar, its intersection level with price will move lower, and my potential profit will increase, as long as I move my profit target as that line moves lower with each bar's close.] This gives me a risk ratio of roughly 2.4, which is good. I enter my limit sell order at 1153.50 and my initial stop loss at 1155.75. Now let's see if price let's me get short:

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During the next bar, price opens unchanged and then spikes higher, just getting high enough to brush the blue up sloping Median Line and getting me short in the process. But price runs out of energy right where it *should* run out of energy and turns on a dime, quickly moving and closing below the lows of the day.

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The next bar opens unchanged and then plunges lower, testing the blue up sloping Median Line, the first potential support level. Remember, I chose NOT to take profits here because I viewed the failure of price to test the blue Upper Median Line Parallel as a price failure, and thus expect a large magnitude move to the down side--at least to the red down sloping Median Line. Once price tests the blue Median Line, it rebounds and closes near its highs. At the moment, price ran out of energy *right* at the Lower Median Line Parallel. [Remember the most important tenet of Dr. Andrews' Original Action Reaction Course: Price will make it to the next line 80 percent of the time. It *did* miss making it to the Upper Median Line Parallel, but it *did* make it to the Lower Median Line Parallel, which is where it was headed once it closed back below the blue Median Line.] The next bar is no help either: Price opens higher and closes higher. My only solace is that the ranges are narrowing as price moves back higher, so it's possible this is an Energy Coil forming. If that's the case, once price has re-stored its expended energy, it should move swiftly again. Now I start to play "What if..." And the problem is, price is so close to my original entry that I have no room to snug my stops without bringing them so close that I might simply be stopped out by the noise of this market. In fact, even moving my initial stop to break even looks too close to me at the moment. I don't feel comfortable, but I leave my initial stop loss order in the market and wait to see what price brings me next:

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Price spikes higher and suddenly, my position has gone from a nice three point profit to a loss. Although price doesn't hit my stop loss order at 1155.75, it *does* close above the red down sloping Upper Median Line Parallel. Now its last level of resistance is the morning's high at 1155. With the new found up side energy of this move, I invoke what I lovingly refer to as the "Two Bar Close" rule: If price closes twice above the red down sloping Upper Median Line, and I haven't yet been stopped out of my position, it is showing more up side energy than my initial observations predicted, and I will close out my position at the close of that bar.

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The next bar opens a little lower and then trades lower in a narrow range, but it does close below the red Upper Median Line Parallel. Has price expended its up side energy with this single test of the red Upper Median Line Parallel? The next bar again moves back above the red Upper Median Line Parallel and closes above it. And being true to my plan, I close out my short position as this bar closes, at 1154.50. Although price left a double top, it is showing *too* much strength [energy] for this trade to fit the profile I had drawn when I first envisioned the trade set up. Some of you may ask why I didn't simply wait to get stopped out at the initial stop loss level or why I wasn't heartened when price *didn't* make a new high, but instead left a double top. These are very valid questions and the answers come down to personal trading styles and preferences. A long time ago, I learned that holding on to a losing trade keeps my mind occupied with managing *that* losing trade, which often left me too busy to see new and often better opportunities unfold right in front of me. When price doesn't act as I expected it to act when drawing up the trade parameters, it's telling me something important: Either I am not seeing the market clearly or the lines I am drawing are not the lines carrying price's frequency. Rather than hold on to a losing position, defending it, I would rather walk away from a losing trade, clear my mind and then have another look. I can always find a new entry if price makes a new sign of failure. I have also discussed the cost of exposure here before, which means that the longer you have an open position, the greater the risk to your capital, and hence, to make equal returns, as a trade goes on longer and longer, it must yield greater and greater net profits. So to me, once it becomes clear to me I have misread a market, I am not shy about exiting. That's why I invoked the "Two Bar Close" stop. Now let's see what price did the rest of the session:

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I lost one E*Mini S&P point on the trade per contract, which isn't important or expensive. You can see that after price tested the blue Lower Median Line Parallel, one bar after I got short, price action didn't fit the plan I had diagrammed. If I had struggled longer, trying to defend my short position and staying with my initial stop loss order, I would have eventually been stopped out for a larger loss. And as important, I would have spent quite a bit longer stuck in a losing trade, unable to think clearly about what the market was telling me. We will all have both winning and losing trades. It's how you manage both of them that makes the difference at the end of the day. I hope you all find this trade example both interesting and informative. And of course, I wish you all good trading! Act, don't Re-act!

hefeiddd

Apr. 20, 2005

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April 20, 2005 Comments: Looking at the chart above, you can see that price "drifted" out of the blue up sloping Median Line I had been using yesterday as price moved forward in time, but there wasn't much of a substantial rally. Yesterday's trading was more of a ramble than anything with much direction, though price did end up higher on the day, in a tight Energy Coil. I still feel price will head lower soon, though so far, there is no sign from price for me to hang my hat on. Note that I did a very general count of the pivots, the sort of count Dr. Andrews would teach. Remember: This isn't Elliott Wave theory--I'm just trying to keep track of alternating pivots. And once I can count from P0 to P4, I draw in a line, the P0-P4 line, which is the "Trend Determination" line. This means that if price moves decisively below this line [after P4 is formed] and price action unfolds below this line, the trend has likely finished and a new market phase has begun. That DOES NOT mean that a down trend follows an up trend immediately, just because a P0-P4 line has been violated. This is a major warning line, for the most part [although you'll see a twist on the use of this line a little bit later]. Now let's see what the opening brings:

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Price shot out of the Energy Coil to the down side on the opening, testing the P0-P4 Line, and then breaking below it and closing below it during the next bar. Then price worked its way erratically higher, making a new high for the move to 1157.75 before settling into something that resembled a range or Energy Coil just above the P0-P4 Line. The narrowing ranges make me think a larger move is immanent, and when the last bar has an even narrower range and closes below the P0-P4 Line, I start to sit up and take notice. Maybe there IS some direction forming here...Let's see what I can come up with:

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I add a red down sloping Median Line, using yesterday's high, the low formed below the P0-P4 Line during the second bar this morning and today's spike high at 1157.75. I am drawing this particular Median Line set for a reason, and this is a little something I haven't talked about here on the web page before, but it's something I do regularly in my own trading. I draw this Median Line set, choosing the pivots I chose, specifically to show me the slope of price and the rate of decline IF price continues to make head way down below the P0-P4 Line. In other words, I chose the pivots of this Median Line specifically to give me the likely path of price IF it moves lower from this point on. If what I just said isn't clear, wait just a moment and view the next chart and read the explanation and perhaps you'll get a glimpse at the madness behind the method:

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Now looking at this chart, you can see that I specifically chose a set of pivots that would give me something specific IF price DID NOT continue lower from this point: Namely, I selected this set of pivots because I wanted to know the up side Energy Potential and the down side Energy Potential [where price would most likely run out of energy on the up side and down side IF price stayed within the range bounded by the low of the day and the high of the day] of price in its "current" state. Why would I want to know both of these things? Well, I want to know the current likely areas where price would expend its energy because these areas are like road signs and they are built on what IS happening right now. And why would I also want to know the slope and rate of decline IF price moves out of this current range? IF price does NOT run out of energy to the down side at one of the markers shown by the current green flat sloping Median Line and its parallels, I'll have a sign of a price failure AND I'll already have in place a measure of the most likely slope and rate of decline of the new move, if one begins. In other words, I am laying a map of a potential new move over the map of the current conditions. Let's see what that would look like:

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Here's both maps overlaid on price. The green Median Line set shows the current energy potential and slope and the red Median Line set shows the potential slope and energy potential IF a down side move unfolds from this point. Now note again that price closed below the P0-P4 Line again and also note that price has now closed below the green flat sloping Median Line. I like the fact that price had no problem closing below this area of confluence made by the P0-P4 Line, which is actually a Center Line in the Action/Reaction Line sets, and the green Median Line. Price IS showing more energy to the down side than the current Median Line would predict and I decide I'd like to try another short position. Let's see if I can diagram out a potential trade set up that has solid risk reward in it:

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Looking at the chart, you can see the plan diagrammed out: I'll sell a rally that gets close to the confluence formed by the green Median Line and the P0-P4 Line and this confluence comes in at 1152.75. Because the P0-P4 Line has an upward slope to it, I won't move far from this intersection price for my order, because I like price to "stretch" to test these areas. I'm going to work my limit sell order at 1152.50. And my initial stop loss order will simply be three ticks above the 1154.50 mini swing high, at 1155.25. Like yesterday, I still expect a significant sell off in this market, especially if it continues lower now down through the P0-P4 Line. For a profit target, I'll use the red down sloping Lower Median Line Parallel, which is where price SHOULD expend its energy on a sharp move lower [though I have a hunch price may test and break the lows made last week, but that's a hunch, not Median Line work]. I measure where price is likely to intersect with the red Lower Median Line Parallel, using the average ranges of the last twenty bars as a guide, and I get an initial profit target of 1143. This gives me a risk reward ratio above 3.4, so that's more than adequate. And remember, should price break down from here in any extended move, the profit target will adjust lower, as we discussed yesterday, because the red Median Line set has a negative slope. I like the way these orders look, so I enter my limit sell order at 1152.50 and my initial stop loss order at 1155.25. Now let's see if price rallies to get me short:

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Price opens unchanged and then rallies right to the confluence formed by the green Median Line and the P0-P4 Line, where it *should* run out of up side energy. And it does indeed turn lower right at this test of the confluence, but not before getting me short at 1152.50. This bar tests the red down sloping Median Line and then closes in its lower half. As soon as I confirm I am short at 1152.50 and my stop loss order is being worked at 1155.25, I enter my initial profit order at 1143.

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Price opens unchanged and then spikes lower in a wide range bar, zooming through the red down sloping Median Line and the green Lower Median Line Parallel and this bar closes on its lows, well below both these important lines and at a new low for the day. Once this bar closes, I move my initial stop loss order to break even. I briefly ponder moving the stop even closer to the action, perhaps just above the green Lower Median Line Parallel, but I decide to work the break even stop for now, giving price a wide path in case the market noise picks up.

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The next bar opens a little higher, then tests the low just made by the prior bar and then moves back to close higher. Note that the range of this bar is narrower, which you'd expect after a nice spike lower. Price is resting a bit, catching its breath and re-storing the expended energy. This bar left a double bottom with the prior bar and the next bar is nearly a mirror bar, leaving a double top and having nearly the same range, with one important exception: This bar closed on its low, a new low for the move. And the next bar follows through to the down side, making another new low. But when it closes unchanged, I immediately move my stop from break even to three ticks above the double tops just made. They were at 1148.50, so my new profit stop is at 1149.25. And I also adjusted my profit order a touch lower, to reflect the negative slope of the red Lower Median Line Parallel.

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Price trades higher with about the same range as the mirror bars and manages to test the red down sloping Median Line. IF you were looking to add to your position, or missed getting short, you should be selling at the intersection of this red down sloping Median Line IF it gets tested, with the same stop I am currently using, three ticks above the double tops at 1148.50. The next bar also tests the red down sloping Median Line [another chance to sell if you need to...] before plunging lower, nearly touching our profit target. Although I'd like to move my stop profit closer to the action, I don't see a logical place to put it, so I leave it where it is for now.

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The next bar opens higher but then continues a little lower, making a new low for the move but not quite making it to our profit target. As this bar closes, I re-adjust my profit target to reflect the downward slope of the Lower Median Line Parallel again, and it's now at 1142.25. The next bar makes another new low and this time, tests the red Lower Median Line Parallel, peeking below it briefly, and I am filled on my profit order at 1142.25. I cancel all other orders and double check that I am flat. I still have the nagging feeling that price will test and break the low made last week but I also know that I have executed my plan as I envisioned it and it netted me 10 1/4 E*Mini S&P points per contract. I have done what I am supposed to do as a disciplined trader: Mark out a logical trade plan and execute it as price unfolds. If I do that day in and day out, I'll continue to be a successful trader. I hope you all find this trade example both interesting and informative. And of course, I wish you all good trading! Act, don't Re-act!

hefeiddd

Apr. 22, 2005

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April 22, 2005 Comments: The E*Mini Russell futures have been in a nice up trend and have basically stayed within the up sloping blue Median Line Set since the low pivot was made on April 18. Price extensively tested the top of this Median Line set, then it tested the bottom of this Median Line set and price ran out of down side energy just where the Median Line theory predicted it would: At the Lower Median Line Parallel. Then price began another orderly climb higher, again eventually testing it's "most probable" line, the Upper Median Line Parallel, which is where price closed on Thursday. Note that though it has briefly closed above and below this Median Line set, a sliding parallel drawn from the extremes of these outer closes did an admirable job catching tops and bottoms, within the boundaries of the noise of this market. Note that I did a very general count of the pivots, the sort of count Dr. Andrews would teach. There's nothing magic about any of the pivots or how many there are; This isn't Elliott Wave theory--I'm just trying to keep track of alternating pivots. Once I can clearly count to P5, I begin anticipating that price MAY turn--and I keep that thought in the back of my mind, waiting to use it in context with the other things price is telling me. In the case of the latest run up, there is no point in showing the P0-P4 Line: It's slope was so steep, price drifted out of it to the right as time shifted price forward. Let's see how price opens:

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Price gapped open lower, zooming below the Upper Median Line Parallel in a wide range bar that closed on its lows. This is not the type of run away zooming gap that normally comes back for a re-test, but if it does, I'll try to sell the re-test. The next bar is a narrower range bar that tests the blue up sloping Median Line while making a new low and closes unchanged. Dr. Andrews' work tells us that one of three things will likely happen at this point: 1) Price can gap or zoom through the Median Line to the down side. 2) Price can stop at the test of the Median Line and change direction, having expended its stored downs side energy. 3) Price can consolidate after the test of the Median Line, forming an Energy Coil to re-store its expended energy. The next bar has about the same range as the previous bar and closes higher, but price hasn't moved far from the Median Line yet. It's still unclear which of the three possible paths price will follow. Let's see what happens next:

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Price makes a higher high but then zooms lower, through the Median Line, and it closes below the Median Line, within the lower third of its wider range. It's not the prettiest Zoom bar I have ever seen--In general, I like them to separate themselves from the Median Line a bit more--but because price so strongly rejected the support at the Upper Median Line Parallel at the open and had already completed more than five alternating pivots, I'm willing to accept it as a valid Zoom bar. Let's see if I can lay out a trade set up to sell E*Mini Russell futures that has a decent risk reward ratio:

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The most obvious trade entry would be to sell a re-test of the blue up sloping Median Line, which is a classic Zoom and Re-Test trade set up. The Median Line will intersect with the Median Line at 595.40 when the next bar opens, so that will be my limit order, to go short at 595.40. Now note that to the left of my re-test area, I marked a secondary plan, which is a direct answer to a course member that asked if I ever consider secondary entry areas in case my initial entry plan doesn't unfold as I hope it will. In this case, the secondary plan would be to sell a break that is three ticks or more below the low of the Zoom bar's low, which came in at 594, so my secondary sell order would be a stop loss order to sell E*Mini Russell futures at 593.70. My initial stop loss is simply three ticks above the 597.70 high of the Zoom bar, which makes my initial stop 598.00. Before I calculate a risk reward ratio, I have to identify a profit target. Let me begin by answering a question that several people have asked privately in emails and our resident chef asked on the forum the other day: How do I decide where price might intersect with a Median Line or Upper/Lower Median Line when I draw these trade set up diagrams--where or how do I come up with a price? Look at the next chart, and I'll give you a brief and hopefully simple explanation:

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There's nothing mystical about the intersection prices I use when calculating the risk reward rations and show an initial target. I simply pick what I consider to be an "average" sized bar and then space a number of them to the right, overlapping their ranges about 30 percent, so they move in an orderly fashion down towards the Median Line or Upper/Lower Median Line I feel is the "most probable" line where price will run out of energy. In the example above, I didn't even do any calculations to determine the size of the "average" bar. Then I simply chose what looked to be a bar with an average range and then strung a handful of them together, overlapping them by 1/3 of their range as I moved them lower towards the blue up sloping Lower Median Line Parallel. It can really be that simple. You can also make it more complicated by keeping a real-time spreadsheet that shows you the size of twenty period moving average of the range of the bars [you DO NOT want average true range, because that would give you measurements that reflected the opening gaps] and then doing a similar exercise, but after doing this a few times with the more exact method, you get a feel for it and can eyeball where price will likely intersect with the Lower Median Line Parallel as accurately as if you had done it using precise averages. Now let me show you the profit target I had in the back of *MY* mind as price gapped open lower below the Upper Median Line Parallel and it became clear it was not going to re-test that Upper Median Line Parallel [all the way back above 600...]:

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Looking at this longer-term view, you can see that the last time price intersected with the Lower Median Line Parallel, it did so at around the 586 area, and then price gapped open higher the next morning, a strong sign that price had run out of down side energy at this level. And looking further to the left of that intersection [back in time], you can see that the last time price intersected with the blue up sloping Median Line, it came in at about 586, and again, price gapped open the next morning--again showing that price had renewed up side energy at this level. So price has made strategic gaps higher once they reached the 586 level where it was in confluence, either with a Median Line or a Lower Median Line Parallel. There isn't a Median Line or Lower Median Line Parallel at the 586 area this time to use as confluence, but there is something else that often shows us where price has likely run out of energy: A Fib projection. Here's how I found it: 1. The high at Pivot 1 is 597.00 2. The low at Pivot 2 is 585.20 3. The distance between these two, the length price travels before running out of energy, is 11.8 points. 4. I take 1.27, a very commonly found Fibonacci expansion ratio and multiply it by the distance price travelled, 11.8 points. This gave me 15 points. 5. I take the swing high of 601.30 made yesterday afternoon and subtract 15 points from it. This gives me a 1.27 Fibonacci expansion target of 586.30. And that gives me my confluence to go with the two prior times price stopped on the down side at the 586 area, only to gap open higher the following session. Am I going to use the projection I made to the Lower median Line Parallel as an area to take profits? No. That profit target, at 590 1/2, would give me a risk reward ratio of about 1.5, and that's IF price made it to the Lower Median Line Parallel in five bars. And remember: The Lower Median Line Parallel is an up sloping line, so the intersection price rises as time moves forward: The longer it takes time to test this line, the higher that profit target would be and the lower the risk reward ratio would be. This doesn't fit my trading profile. *BUT* if you are a scalper or more active trader, this is one area you can consider taking partial profits. Instead, I will place my profit order at the 586 confluence area I outlined above. And that gives me a risk reward ratio of roughly 3.6, assuming I am filled on the re-test and NOT the secondary sell order, which is a very solid ratio. What about the secondary stop loss entry order? It still gives me an acceptable risk reward ratio of 2.18. Let me diagram out the orders and check that they look right:

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The orders look correct to me, so I enter my limit sell order at 595.40, my initial stop loss order at 598 and my secondary stop loss entry order at 593.70. IF I get filled on a re-test of the Median Line, I'll have to be quick to cancel the secondary sell order [and of course, IF I first get filled on the secondary stop loss order sell entry, I'll have to quickly pull my limit sell order].

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Price opens a touch lower but then moves higher quickly, making it above the Median Line and filling me on my limit sell order at 595.40 before running out of energy and turning back lower. I quickly check that I am filled on my limit sell order, getting me short, and then cancel the secondary stop loss sell entry order below the market. Before the end of this bar, price moves through the low of the zoom bar and closes below the Median Line and at its lows. So far, so good.

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Price forms a beautiful Energy Coil and by my count, stays within it for about fourteen bars. As the bars make a third test of the high of the Energy Coil and narrow again in range on their descent, my intuition tells me price may be about done re-storing energy and a move is coming now, likely out through the bottom of the Energy Coil. I add a new red down sloping Median Line, drawn from the 601.30 swing high made yesterday afternoon and the "width" bars of the Energy Coil. This gives me a projection of the slope, rate of decline and potential areas where price *might* run out of energy to the down side IF my intuition proves right about this down side break. I then cancel my initial stop loss order and move it down to three ticks above the 596.30 high of the bar that re-tested the Median Line and got me short--so my stop is now at 596.60. Let's see if my intuition is right:

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Price moves through the bottom of the Energy Coil with two wide range bars that close lower. The second of these two breaks convincingly below the Lower Median Line Parallel and closes well below it, near its lows. Once this second bar closes, I cancel my stop loss order and enter a stop profit order three ticks above its 592.40 high, at 592.70, which is well above the just-zoomed Lower Median Line Parallel and above the bottom of the Energy Coil.

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The next bar makes another new low for the move but closes unchanged. But the bar after that is a wide range outside bar that closes lower, again making a new low for the move and closing near its lows. I don't see any edge to be gained by moving my stop profit order closer yet, so I wait to see what happens with the next bar.

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The next bar spikes lower, easily breaking through the confluence at 586 and the down sloping red Median Line, and in the process, it fills my profit order. I cancel my stop profit order and double check that I am flat. I netted 9.4 E*Mini Russell points on this trade, which is a good day by any measure. Here's the rest of the day's action:

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Before I close, let me point out that although I didn't draw in the red down sloping Median Line set until after the Energy Coil had fully developed--at a point where the trade was fairly mature--Note how price gravitated right to the Median Line and the confluence I had chosen *BEFORE* the trade was entered. We have had numerous discussions about Median Lines and whether they were powerful enough tools in and of themselves. One of the questions was whether they carried any sense of "time" with them, and although I do not agree with some of the propositions other people have put forward about how time and Median Lines are tied together, I *do* find that Median Lines tell me *all* I need to know about time in MY OWN trading. And so often, when I have used a completely different tool set to find a confluent area, as I did in this trade example, as the trade unfolds, I'll find myself staring at a new Median Line set that I just added that gives the same information. Obviously, the confirmation is nice, but it is most comforting to know that these tools are so powerful, once mastered. There is much to digest in this one example, and I hope I showed you the many facets I tried to highlight without muddying the waters. I hope you all find this trade example both interesting and informative. And of course, I wish you all good trading! Act, don't Re-act!

hefeiddd

Apr. 27, 2005

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April 27, 2005 Comments: The E*Mini S&P 500 futures have been following a blue up sloping longer-term Median Line set on the fifteen minute chart quite well in the past four or five sessions. After a nice run higher, they turned lower on Monday and continued lower Tuesday as well. Looking at the first chart, you can see that I added a red down sloping Median Line set after Monday's high was in and since I added the red Median Line set, it, too, has done a good job containing price. Note that BOTH the blue up sloping Median Line set and the red down sloping Median Line set have been tested and done a good job "describing" the path Price would likely take--that is, both clearly gave you areas where Price SHOULD run out of Energy, and Price DID run out of Energy in those areas. So going into Wednesday's pre-opening routine, what's a trader to do? Looking at the pre-opening market levels, price is likely to make a nice gap lower on the opening. I note with mild interest that the blue up sloping Lower Median Line Parallel and the red down sloping Median Line intersect in the general area where "time" will be on the opening, give or take a few fifteen minute bars. The intersection of these two can be a powerful area of confluence. Let's watch how the market opens and see if we get any clues about the day's direction:

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Price gaps open lower, and while I am watching the first fifteen minute bar unfold, I do a quick Fib Expansion calculation, from the last swing lower: The High at A is 1163.75 The Low at B is 1143.75 By subtracting the High from the Low, I get the distance or directional Energy expended in this swing, and that's 20 points. The High at C is 1166.25 I subtract that same distance, 100 percent of the directional energy expended on the prior swing, from the 1166.25 high made on Monday and that gives me the 1:1 Expansion Target of 1146.25. That means that if Price expends the same amount of directional energy, it will run out of energy at 1146.25. A quick glance at the chart tells me this is very close to the confluence formed by the intersection of the blue up sloping Lower Median Line Parallel and the red down sloping Median Line. I'm intrigued but I'd like to see a little more price action unfold before I jump in, because at the moment, it looks like an awfully big gap lower and if price runs into this area of confluence, it may just zoom through it hard, which is one of the three things possible: 1) Price will turn or 2) Price will form an Energy Coil or 3) Price will accelerate and Zoom through. If price Zooms through this area, I want to be a seller on the re-test of the confluence if price rallies back to test it. If price turns higher from this area or appears to be stalling at this area, I want to try to identify a long entry set up that gives me a good risk reward ratio. If it looks like an Energy Coil is forming, I may not be interested in a trade at all! Let's watch a bit more:

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Two bars later, I see what I want to see to get some ideas: Price tests the area of confluence, actually peeking below the blue up sloping Median Line Parallel before closing back above it. Now this single bar test, in and of itself, DOES NOT tell me price is going higher from here. In fact, both Median Line sets are still doing a good job predicting where price will likely run out of its directional energy. But what I DO have is this: I have a solid set of confluence just below where this current bar is closing. I also have a general 1:1 Expansion Projection that tells me price should run out of directional energy at this area. And I have one thing even better: Now I have a trade set up that easily identifies a low risk stop loss, so that if I my intuition to try a long entry here is wrong, the risk reward ratio of the potential trade is well within my parameters. Let me diagram the trade out for you:

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I want to buy a re-test of the blue up sloping Lower Median Line Parallel and this intersection comes in right at 1146 for the next bar. I'll set my initial stop loss order at three ticks below the 1145.25 low of the day that was just made, so it will be at 1144.50. So I'll be risking 1 1/2 points on this trade IF price allows me to get long at a re-test of the blue Lower Median Line Parallel. And for those that have asked, my secondary entry order [in case price doesn't re-test the Lower Median Line Parallel] is three ticks above the 1147.25 high of the probe bar that just closed. And if that is how I end up getting long, I'll be risking 3 1/2 points, which is just about as much as I risk on a trade. Let's look at potential profit targets to see if they justify a risk of 3 1/2 points! The most likely profit target is a test of the blue up sloping Median Line, and doing that fuzzy bar spacing technique I showed here on 4/22/05, I calculate price should intersect with the blue Median Line at just about 1158. This means that if I get filled on the secondary entry order, my risk reward ratio is nearly 2.9 and that's fine. And if I get filled on my preferred entry order, which would come with a test of the blue Lower Median Line Parallel, I'd be looking at a risk reward ratio of...well, 8, which is wonderful. So I like these orders and I'll take this trade set up. But let me add one more thing, since some traders have asked if I ever trail stops and "just let things run," or if I take partial profits and then trail stops on the balance, to try to capture more of the move if I get a pleasant surprise. Since I *still* can't tell which of the Median Line sets is "in charge," I can also make the case that the profit target *should* be where price is likely to intersect with the red down sloping Upper Median Line Parallel. So I've added this to the entry order possibilities as well, and labeled it as the "Secondary Profit Objective." Now let's see if price get's me long at the re-test of the Lower Median Line Parallel or at the break above the prior bar's high...Or if I get long and quickly stopped out for a loss as price zooms lower:

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Price DOES re-test the blue Lower Median Line Parallel, getting me long at 1146. I check the audit trail on my electronic platform and once I see the exchange confirmation that I am long, I cancel the secondary order to get long at 1148. And I double check that my initial stop loss order is in place. Price doesn't make a new low, but instead leaves double bottoms and after getting me long, price moves above the high of the previous bar and closes near its highs. I enter my profit order at 1158 as the bar closes.

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Price spikes higher and makes a new high for the day, but just as quick as it rallied, it comes back down. Price still hasn't filled the morning gap, but this bar closes higher, so perhaps that was some over-eager short term traders trying to fill the gap and then exiting their long positions when it didn't look likely. The next two bars are narrower in range and have about the same range--I call these "mirror bars," because they also have alternating closes, meaning the first bar closed higher and the second bar closed lower and they left double bottoms. As the second "mirror bar" closes, I move my initial stop loss order up to break even. The inability to fill the gap and the mirror bars with double bottoms are a sign it's time to be a little cautious. I'm always trying to play, "What if..."

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Just as I turn cautious, price spikes higher again, making another new high for the day, and this time, price easily fills the morning opening gap. Note that the low of this spike bar matches the double bottoms of the mirror bars. As soon as this bar closes, I cancel and replace my break even stop and snug it up to three ticks below the 1148 triple bottoms, to 1147.25. The next bar makes another new high but then closes near its lows. This is followed by a bar with about the same range, and this bar closes near its highs! These two are essentially "mirror bars" as well, but I've already snugged my stop order up, so there's nothing for me to do but wait for further input from price.

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Price again spikes higher, quickly filling my Logical Profit Order at 1158. I check my electronic audit trail and once I see the exchange confirmation, I cancel my stop loss order at 1147.25. This trade quickly netted me twelve E*Mini S&P points and that's always a good day's work. Let's follow the action a bit more, since I put a Secondary Profit Target on the chart for those of you that want to try to either let trades run with trailing stops or want to try taking off half a position at one target and let the rest run, with trailing stops.

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The spike bar is followed by a very narrow range bar that closes lower--which isn't unusual, since price *should* have expended its directional energy at the blue up sloping Median Line. Even if it goes higher from here, it needs to re-store energy after that powerful spike higher. The next two bars both close a little higher, but they leave double bottoms. It's still not clear if price expended ALL its directional energy at the test of the blue Median Line, so it's possible that was all the rally we'll see for the day. So playing, "What if..." If I was still long either the entire position or a portion of the original position, I would now snug my stop profit order from the 1147.25 level to three ticks below the 1155.25 double bottoms, to 1154.50. Now no matter what happens, I'd be out of the market with a tidy profit.

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And once again, as soon as I get cautious, price spikes higher, this time hitting the Secondary Profit Target at 1161. If I was still long, I'd check my audit trail and once I saw the exchange confirmation, I'd cancel my stop profit order. I'll have to start keeping track of when I get cautious...maybe it's a new indicator I can plot? It's actually this: Any time price expends a great deal of energy and then pauses, I get cautious, because there is always the danger that that heavy expenditure has "emptied the fuel tank." The key is the narrower range bars that follow the spikes, which always point to price resting, re-storing energy. And though they aren't *true* Energy Coils, they act very much like them, meaning price could come out of these mini-formations on either side, so I always try to play "What if..." and make sure I have my stop order protection at a level I am comfortable with. Let's see how the day finishes up:

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Price leaves a double top and then turns lower. Though it does eventually re-test the red down sloping Upper Median Line one more time, it finally breaks back below the blue Median Line and closes below it as well. Now comes the philosophical question: I began the day asking which of these two Median Line sets was in control. And honestly, I now end the day admitting that even after the day's nice trading action, it's not clear which is in control. Maybe it's correct to say that both contained price, though I clearly keyed my own trading off of the blue up sloping Median Line set. Maybe tomorrow will tell us which one is in control... Once again, I tried to show a couple different twists in this example, showing multiple entry techniques and multiple profit levels. Also note that this trade was really a simple "buy at the test of the up sloping Lower Median Line Parallel" vanilla type trade, with one exception: The key to limiting the risk on this trade AND making it a higher probability trade was watching price test the confluence area once and then putting in place a solid entry order set that had good risk reward ratios. Can you simply buy or sell at the test of every Median or its Upper and Lower Parallels and use stops or stop and reverse orders? Certainly! Will it work? Yes. Each trade won't carry the rate of success of the trades I show here, and I think that's where people get confused. At these lines, one of three things will happen: 1) Price will turn or 2) Price will form an Energy Coil or 3) Price will accelerate and Zoom through. DR. Andrews said price will reach these lines 80 percent of the time, and as I have stated many times and showed in my first book, after doing statistical research, that statement is correct. But reaching the line and turning at the line is NOT the same thing.I have found that by being more selective--in this case, waiting for the test of the area and then laying out the orders once I can measure risk--I miss most of those "buying or selling in front of the zooming train" trades now. Do I miss some entries that would have been very profitable? Absolutely. But my winning percentage is much higher and I find it much less wear and tear on *me*, which is very important, at least to me. I hope you all find this trade example both interesting and informative. And of course, I wish you all good trading! Act, don't Re-act!

hefeiddd

May 10, 2005

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May 10, 2005 Comments: Sometimes you have to take a simple trade when you see it. In fact, take them every time you see them. We've spent a lot of time recently here talking about some of the more arcane rules associated with Dr. Andrews' Original Action-Reaction Course and the simple trades sort of got swept under the carpet because I was very busy trying to carefully define some of those concepts and some of the trade set ups that are built around those concepts. But here's a very simply trade from last week that is nothing more than a test of a Median Line, followed by a test of overhead resistance. They don't get much easier than that. The stock indices in general had been moving lower for four or five sessions and just couldn't seem to find any buyers. But the Russell 2000 finally had a nice rally after that prolonged sell off and looking at the chart before the opening, I noticed that price had traded between the red down sloping Upper Median Line Parallel and the red Median Line all the way down. And although price briefly peeked below the Median Line, yesterday, it closed back above the red Upper Median Line Parallel on the day. This made me a little friendly to the upside, but staring right at me were two overhead lines of resistance: a set of multiple tops at 586 and a set of multiple bottoms at 588. But looking at the chart, that stills leaves a good six points to work with, which in the E*Mini Russells is $600 per contract--not exactly chicken feed if you can find a way to pick it up. Because I can see support below the market and two levels of overhead resistance above it, I draw in a green nearly flat Median Line set, with a slope that I *think* will likely match the day's action. Let's see how the market opens:

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Price gaps open higher, about in the middle of the range I am interested in capturing, so at least for now, my original idea is shot in the foot. I'll have to watch for another opportunity or wait for a new idea, because right now, price is trading right in the middle of the range I identified before the opening. A little patience, anyone?

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After three strong up side bars, price tests the first area of overhead resistance, at 1186. And as I thought before the opening, price runs out of directional energy at this area and turns lower. But when it changes direction, it drifts lower...About sixteen bars after testing the overhead resistance, it finally does something that makes me sit up and take notice: Price fills the opening gap and tests the green nearly flat Median Line. Now I see something I think I can work with. It's an easy trade set up and the risk is very defined. Let me diagram it:

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Oh, wait! First things first!!! Why didn't I just have a buy order sitting at the green Median Line? Remember what can happen when price approaches any of these important lines: At these lines, one of three things will happen: 1) Price will turn or 2) Price will form an Energy Coil or 3) Price will accelerate and Zoom through. I said last week: "DR. Andrews said price will reach these lines 80 percent of the time, and as I have stated many times and showed in my first book, after doing statistical research, that statement is correct. But reaching the line and turning at the line is NOT the same thing.I have found that by being more selective--in this case, waiting for the test of the area and then laying out the orders once I can measure risk--I miss most of those "buying or selling in front of the zooming train" trades now. Do I miss some entries that would have been very profitable? Absolutely. But my winning percentage is much higher and I find it much less wear and tear on *me*, which is very important, at least to me." So here again, instead of simply standing in front of the train as it comes down towards a test of the Median Line, I let it make its test *first*, which allows me to first SEE if it slows as it tests the Median Line and also then allows me to see if the bar that tests the Median Line closes through the Median Line or closes back above the Median Line. Now that I've seen that first test bar close, I can lay out the logical orders, as I see them: If price tests the green Median Line again, I want to get long at 580. If price lets me get long, my initial stop loss will be three ticks below the low of the day, which just happened when price tested the Median Line but then closed back above it. The initial stop will be at 578.80, so I'd be risking 1.2 E*Mini Russell points. And my Profit Target is a test of the first overhead resistance, which was tested once earlier today, at 586. The risk reward ratio on the trade is a very nice 5. The orders look good, so I put my entry order and initial stop loss order in the market.

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The next bar also tests the Median Line, getting me long at 580, before closing back above the Median Line again. As soon as I have confirmation of my fill, I check that my stop loss is still in the market and then I enter my profit order at 586. Now let's see what the market does from here:

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Price actually tests the Median Line once before before taking off with a wide range spike bar higher. After one more bar that closes higher, price comes back to try to form a wide range bar that tests the down side, but even this bar manages to close higher. But in the process of testing the down side, it leaves a mini-swing, which gives me a place to snug my stops, turning them into profit stops. My new stop profit order is now three ticks below this mini-swing low, at 580.90. I'm now playing with the market's money. The next bar moves higher again, and things seem to be progressing towards my profit target.

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As I said in the beginning of this post, this was going to be a simple trade. And indeed, two bars later, which also happens to be the second to the last bar of the day, price tests the overhead resistance at 586 and I am filled on my profit order. Once I get my sell confirmation at 586, I cancel my stop profit order. This trade netted a nice $600 per contract in a relatively quiet market. The key to the trade was setting out the parameters of what I was looking for and then having the patience to wait for the trade to develop. Forcing a trade wouldn't have worked here and it seldom works in any market. Identify your edge and wait for it to show up. If it does, take your swing. If it doesn't, there will always be other trade set ups. I hope you all find this trade example both interesting and informative. And of course, I wish you all good trading! Act, don't Re-act!

hefeiddd

May 12, 2005

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May 12, 2005 Comments: Before the opening, I was looking at the E*Mini Russell 15 minute chart, above, carefully. There is a *ton* of confluence forming overhead resistance between 598-600. The rally out of the hole yesterday may have put price in position to test the red down sloping Median Line Parallel and if that's the case, price will be testing all of this confluence. First there's the double tops at 599.80--Those are easy to identify. And then, if you measure the Directional Energy price spent in the last two up swings--that is, how far did price move in one direction, bottom to top, in the prior two upward moves--You'll see that in the first swing, price moved 10 E*Mini Russell points higher and in the second swing, price moved 9 1/2 E*Mini Russell points higher. By taking those two distances and adding them to the current low, at point E, you can see that if price uses the same amount of Directional Energy in this same move higher, this move should end somewhere between 597.60 and 598.10. Here's how I calculated the 100 Percent Directional Energy Measurements for the two prior up swings: The low at A was 591.00 The high at B was 601.00 Subtracting the low at A from the high at B gives me the total directional Energy spent traveling from A to B, which was 10 E*Mini Russell Points The low at C was 594.00 The high at D was 603.50 Subtracting the low at C from the high at D gives me the total directional Energy spent traveling from C to D, which was 9 1/2 E*Mini Russell Points. The low at point E was 588.10, so if price expends 100 percent of the Energy moving higher from E as it did when it moved from A to B, it should run out of Energy at 598.10. And if it spends 100 percent of the Energy moving higher from E as it did when it moved from C to D, it should run out of Energy at 597.60. Now let's see how the market opens:

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Price gaps open higher and then climbs higher, testing the red down sloping Upper Median Line Parallel and both the 100 Percent Directional Energy Projections. Once price reaches the area of confluence, it sells off, closing about where it opened and in the lower third of its range. Before someone asks the question, "Why didn't you just work an order to get short, before the market opened, at the area of confluence?" The short answer is that with *that* much confluence, there's nothing wrong with working an order from the opening bell, as long as you also have a stop order in place and have identified a Logical Profit Target that gives you a solid risk reward ratio. However, I have seen over and over again in my testing of actual trades that by waiting to place my orders at a test of a Median Line or Upper/Lower Median Line until the first bar has tested and closed, I generally miss the losing trades where price hits the area and *zooms* through it, accelerating instead of stopping and reversing at the "most probable" line. Now that I've seen how price reacted at the area of confluence and at the Upper Median Line Parallel, let me see if I can diagram a set of orders that will give me a solid risk reward ratio:

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I want to get short at a re-test of the Upper Median Line Parallel, which is confluent with the 100 Percent Directional Energy Projections from A:B and C:D, so my limit sell order is at 598.10. My initial stop loss order will be three ticks above the 599.80 double tops at 600.10. And "eye balling" where price will intersect with the down sloping red Lower Median Line Parallel after a handful of bars, my profit target will be at 588. That gives me a risk reward ratio of just over 5, which is more than acceptable. I enter my limit sell order into the market and at the same time, I put my initial stop loss order in. Let's see what price does now:

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Price throws me a bit of a curve ball and spikes lower, closing near its lows and I wonder if I'll get a chance to get short near the confluence area! But the next bar is the exact opposite of the spike bar lower, a mirror bar, that spikes back up and closes near its high. The market is apparently as nervous as I am, but I have my plan and I'll go with the plan. Let's see what develops:

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Price opens unchanged and then spikes higher, testing the Upper Median Line Parallel and in the process, getting me short at 598.10, but then as fast as it climbed higher, it turns back lower and closes near its lows. These are classic signs that price has has likely expended its Directional Energy at the 598 area. Once I get confirmation that my limit sell order at 598.10 was filled, I put in my profit order at 588.

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Price actually tests the Upper Median Line Parallel again, and again, it turns back down hard off the area of confluence and the wide range bar closes near its low--in fact, this bar is an outside bar lower, because it had a higher high than the prior bar and a lower low than the prior bar and it closed lower than the prior bar. And that's generally a good sign if you are short. That's also the third fifteen minute bar that has tested the Upper Median Line Parallel and failed, so I'd like to see price make some progress to the down side soon, please...

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Price makes more progress to the down side--finally! Price tests the red down sloping Median Line, which is one of its "most probable" lines to the down side, so even though I am not using the Median Line as a profit target or even a partial profit target [though YOU could use the Median Line as an area to take profits or partial profits if the risk reward ratio works for you, or if you are scaling in and out of positions], the fact that price has now tested the Median Line makes me re-evaluate just where I am in my trading plan and how much risk I have "on the table." Why? It's possible that price may have expended its down side energy at the test of the Median Line and if that's the case, do I still want to be working my initial stop loss order or can I snug it closer to the current price action without being caught up in the noise? After a quick look at the chart, I decide to move my stop to *four* ticks above the 598.70 high of the day, to 599.10, because I want my stop loss order to be one tick above the even number 599. It may not matter, but it sometimes keep me in the market when floor traders are just running stops, so to me, it's worth the extra tick for peace of mind. I cancel and replace my stop loss order. Now let's see what price does:

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Price spends the next seven bars forming an erratic Energy Coil, but that isn't surprising with all the wide range bars we have seen today. Looking at the chart, I don't feel comfortable moving my stop order closer to the action yet, so I'll just have to wait for a better clue from price when it comes out of the Energy Coil:

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Price breaks below the Energy Coil by making a wide bar lower and price moves below the Median Line and also closes below it. Once this wide bar closes, I snug my stop loss order down to three ticks above the top of the 596.40 Energy Coil price just broke out of, which is also a swing high now. That makes my profit stop 596.70, so I am now playing with the market's money--always a good thing. The next three bars are narrow range bars, which make me pay attention, because price is coiling again, or re-storing energy. If I hadn't already moved my stop to just above the swing high, I'd be snugging it up after seeing these three narrow range bars form. The one saving grace of these three bars is that they all close below the red down sloping Median Line. Since I've already snugged my stop order, there's nothing to do here but stay with the plan and watch for further clues from price:

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Price spikes lower with a wide range bar, making a new low for the day, and when this wide range lower bar closes, I snug my stop profit order again to three ticks above the 593.50 low of the Energy Coil, which is also an area well above the Median Line, to 593.80. If price has enough energy to get back above the bottom of the Energy Coil AND back above the red down sloping Median Line, I'd prefer to get profit stopped out. The next bar also makes a new low for the day but it is a narrow range bar. If I hadn't already just snugged my stop profit order closer to the action, I would do so now, because the narrow range tells me price may be running low on directional energy.

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The next bar starts out making me uncomfortable, spiking higher, but then it spikes lower and closes lower on its lows. Remember, that makes it an outside bar lower, meaning the high was higher than prior bar's high and the low was lower than the prior bar's low and this bar closed lower than the prior bar. And remember that this type of bar generally bodes well for further down side action. The next bar is also a wide range bar and it moves to and through the red down sloping Lower Median Line Parallel, filling me on my Profit Target at 588 as it does so. Once I confirm that I was filled on my profit order, I cancel my stop profit order. This trade netted a nice $1010 per contract, which is a nice day's work. I liked the use of the prior two swings higher to measure the prior Directional Energy expended to the up side to confirm the re-test of the Upper Median Line Parallel as an area where price would likely run out of directional energy. I hope you found this trade interesting and informative. And I wish you all good trading! Act, don't Re-act!

hefeiddd

May 23, 2005

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May 23, 2005 Comments: People have asked how I use the AutoForks RT program in my own trading, since I have been "manually" drawing Median Lines for thirty years now. When you first begin to use the Autoforks RT software program, it's easy to be overwhelmed with the number of pitchforks the program draws automatically. Let me try to give you a brief glimpse into how I used it in a recent trade and this can be a great way for you to discover just how easy it is to start using the software program successfully in your trading, whether you've never drawn a pitchfork before or been drawing them for years. Now let me see if I can show you a step by step practical example of how I used it in setting up a successful trade just this past week: Once you have Ensign up and running, you need to apply the Autoforks indicator on a chart. At this point, I assume you have the software installed and have tried it on other charts. If you need help installing the software, this example will probably not help you until you have correctly installed the software. Contact technical support at Autoforks RT. Let's take a look at the Ensign Toolbar that always sits on top of your charts, which is where the buttons that you'll use to start and configure Autoforks are found:

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The first button you need to be aware of is the "Run" button, which is where you'll find the Autoforks RT indicator start button. Click on the Run button and you will see the AutoForks button listed there. By clicking on it, you automatically start a copy of the Autoforks indicator on the chart running in Ensign on the page you are working on. Remember: You CAN run more than one Autoforks indicator on any given chart, and you'll see why that's important a bit later. Here's a fifteen minute chart of the E*Mini Russell futures [AB #F or AB M5] before I clicked on the Run button and the Autoforks button:

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Once I clicked on the Run button and then on the Autofork button, the chart changed to look like this:

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So now I have a set of pitchforks that will update with the close of each fifteen minute bar. I don't have to draw them, they draw themselves. Is that a good thing? Yes and no. It's great that I don't have to draw them. That means I don't have to learn how to draw pitchforks or choose pivots. But if I simply leave the Autoforks RT program set on its default settings, sometimes I'll see pitchforks that are doing a great job showing me what I need to see. And sometimes, I'll see lots of pitchforks that update to new pitchforks, all day long, and see nothing that really helps me make any trading decisions. Does that mean Autoforks is a useless piece of software that just adds more noise for you to watch? If you use it incorrectly, that could be the outcome. Tools are only tools. If you try to hammer in a nail using a screw driver, you won't get very far. It's the wrong tool for the job. And even if you pick up the right tool for the job, you need to have an idea how to use it, or you'll just hit your fingers with the hammer over and over. So now let me show you how to make Autoforks a much more useful piece of software that WILL make a difference in your trading: Let's take the example from May 12, 2005 [the link to that trade description is a few paragraphs above] and see how I chose the pitchfork, using Autoforks RT, for that trade. Before the E*Mini Russell market opened, I opened Ensign, put up an E*Mini Russell chart and put the Autoforks RT indicator on that chart. Now remember what the buttons on the top of your Ensign screen look like:

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Once I had Autoforks running, I clicked on the "Object" button and this screen appeared:

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Then click on the "Properties" button and the following page will pop up:

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This is the control panel of the Autoforks RT indicator. You can change settings for everything from the number of pitchforks shown on your chart, the color of the pitchforks, the thickness of the lines for each of the pitchforks drawn, how the program alerts you when price touches a Median Line or Upper or Lower Parallel, and much, much more [Read the instructions that came with the software and ask questions on the Market Maps Forum if you have more questions about settings!!!]. Before I do another thing, I turn off the first [pink] auto pitchfork by clicking on the second box to the right of the "1st Line" that has a black solid horizontal line shown in it and has the word "Style" above the box. Once I click on it, it brings up different line settings and if I scroll all the way to the top of this list of line types, there is a "blank" setting, which is simply all white with no line showing. When you choose this, it turns that pitchfork off. Then I go to the last line on the control panel and I change the third box, furthest to the right after the variable "Spread," by clicking on the arrow there and finding a "marker" I like. I choose a square with a small hole in the center. By changing this box from blank [or white] to show this square marker, Autoforks RT will place a green square above or below me each pivot, making it easy for me to see what pivots Autoforks is "seeing" and "using." This will be important in a moment, when I show you how I "rock" through the shift settings, looking for a dominant pitchfork. The control panel now looks like this:

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Why do I only want to look at one pitchfork at a time? I don't want to be overwhelmed with TOO much information. The FIRST thing I need to know, whether I am drawing the pitchforks by hand or whether I am letting the software draw them for me is this: Is there a dominant pitchfork already "in control" of this market? I am looking for ONE pitchfork that will give me the direction of this market and the likely areas where price will run out of energy. To do this, I don't need or want two or three pitchforks. I need ONE pitchfork that price has been tested and has done a good job showing the direction of price and the areas where price will likely run out of energy. Start out by finding this before the market opens and you will simplify your trading by 1000 percent! So now I have Autoforks set up so that it will show me ONE pitchfork, not two or three. And it will also show me each pivot it detects, by marking them with a green square. I click on the box marked "OK" and the control panel closes. I can now double check that I am seeing just one automatically drawn pitchfork and pivots marked with green squares:

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Once I double check that I am only seeing green squares at each pivot and only one blue pitchfork, which is the pitchfork controlled with the "2nd Line" blue box, I am ready to begin the pitchfork selection process [You could have used the "1st Line" by leaving it colored pink and changing the "2nd Line" and box to "white," but I chose to work with the second pitchfork that I marked blue. Either choice would be fine. Now let's begin the selection process: Click on the "Objects" button on the Ensign toolbar and then click on the "Autofork 3/5/1/0" and then click on properties. Once again, you'll see the Autoforks Control Panel. Now click on the dark blue band on the top of the control panel and you can "drag it down or around" on top of your chart. You want to set it up so you can see a good amount of the chart you are going to trade, but you still need to see the settings on the far left of the Control Panel, because we're going to change them to look at different pitchforks. If you have more than one screen attached to your computer, you can make Ensign stretch to more than one screen and then put the entire chart on one screen and the Control Panel on another, which makes it very easy to see, but if you have only one screen, here's what you'll be looking at:

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Ok, you should be looking at a chart that also has a gray box near some corner that shows the "settings" boxes, just as the chart above has the settings boxes in the right bottom corner. Now I'm going to use those settings to "scroll through" potential pitchforks until I find the pitchfork that I think will show me the likely areas where price will run out of energy as the market unfolds today [Remember, this was on May 12th]. In Autoforks slang, when we scroll through the 1st or 2nd values, we call that "spinning" and when we scroll through the Shift -L/R+ setting, we call that "rocking." If you have a set of variables that you have used with some success, it's often easier to begin by using those settings and "rocking" through the possible shift variables, because it's very easy to "rock" through the shift variables. In the E*Mini Russells, I have had some recent success using "3" as the 1st variable and "5" as the second variable, so I am going to use those two settings and try "rocking" through the shift variable to see if I can identify a pitchfork I feel has the potential to be dominant after the open. Now let's look at the actual charts that were made before the session opening on May 12, 2005 as I "rock" through the settings [note I have moved the control panel in the left hand corner and it now reflects the current settings]. Again, we're going to look at each chart as I change the shift settings and try to be aware if it has been useful in showing us where price is going [up trend, down trend, or trading range] and if it has been helpful showing areas where price was likely to run out of energy. So we're looking for Median Lines and Upper/Lower Median Lines that have been tested by price and have proved useful, as well as keeping an eye out for something that *might* look promising after the market opens. Here we go with shift setting "0":

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Ok, this chart isn't bad. I don't know that it has been tested enough for me to feel comfortable trading off it, but depending on where price opens, we might want to keep this one in the back of our mind. If you had just let the autoforks program churn out pitchforks, one after the other, you would have seen this pitchfork pop up in the past few sessions yesterday [May 11, 2005]. Let's look at shift setting "-1":

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This pitchfork looks exactly like the prior pitchfork, and that's because it IS the same pitchfork. By setting the shift setting to "-1," you "freeze" the pitchfork, so that it will not change on the screen and the program will not change it until you go back into the control panel and change the shift value. So remember: IF you are watching the AutoForks RT program and letting it automatically generate pitchforks for you, if you suddenly see a pitchfork you like, simply click through to the control panel and change the shift value [which will be at "0" if Autoforks is automatically updating the pitchforks for you] and change it to "-1." Now let's look at shift setting "-2":

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This pitchfork clearly will not help us today, because it had such a negative slope that price has "drifted" through it to the right and it is very unlikely price would trade low enough, fast enough, for this pitchfork to come into play. Let me pause here for one moment and explain now exactly what the "shift" setting is doing: If you look carefully at each of these charts as I "rock" through them, you'll see that as I change the shift variable, Autoforks "shifts" the pivots being used either backward or forward in time. This means that if you change the shift value from "0" to "-2," instead of using the three current alternating pivots, Autoforks will use a set of alternating pivots one back from the current set. Why only one set, if we chose a "-2" shift value? Remember we use the "-1" shift value to freeze the current set of alternating pivots so they will no longer change, so a shift value of "-2" shifts the alternating pivots back one from the current set. Let's look at setting "-3":

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It seems like we're getting closer. This pitchfork's Median Line was tested once and price sold off hard after that test, zooming well through the Lower Median Line Parallel. Price did eventually climb back late in the day yesterday to re-test the up sloping blue Lower Median Line Parallel and then price consolidated below the Lower Median Line Parallel. Again, this is a pitchfork we may want to keep our eyes on, depending on where price opens. Selling a re-test of the up sloping blue Median Line Parallel that was zoomed might be an enticing trade set up. Let's look at setting "-4":

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Not much promise here. The pitchfork was too steep and price drifted to the right of this pitchfork as the day went on yesterday, especially once price turned higher. It's highly unlikely this pitchfork will come into play tomorrow. Let's look at setting "-5":

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This pitchfork hasn't been tested by price and we've already seen a similar pitchfork that *has* been tested and will give us similar measurements if price trades to the upside, so I'm not going to pay much attention to this pitchfork. Let's take a look at setting "-6":

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This pitchfork did a GREAT job describing most of the sell off yesterday and the Median Line and Upper/Lower Parallels were each tested several times. Price DID zoom above the Upper Median Line Parallel early yesterday afternoon, so if price opens quite a bit lower, we might keep this pitchfork in the back of our minds. That might set up an interesting area to try a long position IF the risk reward ratio is acceptable. Let's take a look at setting "-7":

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Nothing here. Two days ago, this pitchfork briefly caught part of the late day up move. But the slope of this pitchfork is too steep and price has moved too far to the right of this pitchfork for it to come into play. Let's take a look at setting "-8":

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This pitchfork looks quite promising. The Upper Median Line Parallel, the Median Line and the Lower Median Line Parallel have all been tested. And while price briefly broke above and below this pitchfork, price really has been "kept in check" by this pitchfork. Of all the pitchforks I have seen in this series so far, this one looks the most interesting. I can envision a re-test of the down sloping Median Line as a potential area to get long or a test of the down sloping Upper Median Line Parallel as a potential area to try to get short, if the risk reward ratio looks good on the trade set up. I'll definitely keep my eye on this pitchfork. Let's take a look at setting "-9":

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It's highly unlikely price will trade high enough, fast enough, to test this pitchfork. It's not worth looking at. Let's take a look at setting "-10":

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Price has clearly moved too far to the right for this pitchfork to have much chance of intersecting with price. There's nothing here. We may have shifted so far back in the prior pivot sets that we're not going to see any more useful pitchforks. Let's look at one more to see if it, too, is shifted too far away from current price to be useful. Let's take a look at setting "-11":

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Again, this is not a pitchfork that will come into play in today's trading. We have shifted back so far in the alternating pivots that the pitchforks are no longer interacting with price. There's no point "rocking" back any further. For us to do further investigations into potential dominant pitchforks before the session opens, we'd need to look at the 1st and 2nd variables, one at a time, which we call "spinning." And by the way, when YOU are doing this with the software, you can simply hold down the arrow on the variable you are changing [1st or 2nd value if you are "spinning" or shift -L/R+ value if you are "rocking"] and it becomes a very quick exercise to look through 10,20,30 or even 40 possibilities. Simply keep track of the ones that look promising as you "spin" or "rock" through the variables. The best setting I've seen, looking at this chart before the opening [of May 12, 2005] for a single pitchfork, is using the 1st variable set to "3" and the 2nd variable set to "5" with the shift value set to "-8," which also means the pitchfork will not change as price moves forward. By the way, you don't have to turn off both pitchforks. I often use two pitchforks and then "spin" or "rock" through the settings to see what variables are working. But you can certainly focus on finding one pitchfork that is dominant before the opening and then use that one pitchfork throughout the trading day. Another important thing to remember: If you want to see Autoforks draw additional pitchforks and still keep this "dominant" pitchfork locked onto your screen, you simply click on the Run button, click on the Autoforks Indicator button and a new indicator will be inserted, giving you up to three new pitchforks that are automatically drawn by the software, right on the same chart with the dominant pitchfork I just identified. Now here's one last trick: After reviewing the variables I "rocked," there were two I thought that looked most promising: The best had a shift value of "-8" and the second best had a shift value of "-3." Both had 1st and second values of "3" and 5." Rather than choose which to look at before the open of the morning session, I simply put one on the chart with the settings of "3,5,-8 and then once the first pitchfork is on, I click back on the "run" button and add another Autoforks indicator and set it to the settings of "3,5,-3," which give me my two choices on the same chart, so I can see how they line up alongside each other. Once again, I am looking for en edge--confluence or a grouping of resistance or support that I can trade against. Here's the chart containing both of these choices on one chart, before the opening of the trading session on May 12:

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You can see that there is some interesting confluence coming in above the market at the 598 1/2 area, where the pink up sloping Lower Median Line of my second choice intersects with the blue down sloping Upper Median Line of my first choice. Remember, because I have these set to "negative" shift values, these pitchforks will stay drawn unchanged UNTIL I change them. If I want Autoforks RT to draw new pitchforks that automatically update, I can add them as well by simply clicking on the run button and adding another Autoforks indictor and this time, leaving the shift setting set at zero. Now let's see how these two pitchforks, that I chose using the "rocking" technique, performed as the day session unfolded:

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Before the opening, I was looking at the E*Mini Russell 15 minute chart, above, carefully. There is a *ton* of confluence forming overhead resistance between 598-600. The rally out of the hole yesterday may have put price in position to test the intersection of the blue down sloping Upper Median Line Parallel and the pink up sloping Lower Median Line Parallel. There are double tops at 599.80--Those are easy to identify. And then, if you measure the Directional Energy price spent in the last two up swings--that is, how far did price move in one direction, bottom to top, in the prior two upward moves--You'll see that in the first swing, price moved 10 E*Mini Russell points higher and in the second swing, price moved 9 1/2 E*Mini Russell points higher. By taking those two distances and adding them to the current low, at point E, you can see that if price uses the same amount of Directional Energy in this same move higher, this move should end somewhere between 597.60 and 598.10. Here's how I calculated the 100 Percent Directional Energy Measurements for the two prior up swings: The low at A was 591.00 The high at B was 601.00 Subtracting the low at A from the high at B gives me the total directional Energy spent traveling from A to B, which was 10 E*Mini Russell Points The low at C was 594.00 The high at D was 603.50 Subtracting the low at C from the high at D gives me the total directional Energy spent traveling from C to D, which was 9 1/2 E*Mini Russell Points. The low at point E was 588.10, so if price expends 100 percent of the Energy moving higher from E as it did when it moved from A to B, it should run out of Energy at 598.10. And if it spends 100 percent of the Energy moving higher from E as it did when it moved from C to D, it should run out of Energy at 597.60. Now let's see how the market opens:

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Price gaps open higher and then climbs higher, testing the intersection of the blue down sloping Upper Median Line Parallel and the pink up sloping Lower Median Line Parallel, climbing just above both the 100 Percent Directional Energy Projections in the process. Once price reaches this area of confluence, it sells off, closing about where it opened and in the lower third of its range. Before someone asks the question, "Why didn't you just work an order to get short, before the market opened, at the area of confluence?" The short answer is that with *that* much confluence, there's nothing wrong with working an order from the opening bell, as long as you also have a stop order in place and have identified a Logical Profit Target that gives you a solid risk reward ratio. However, I have seen over and over again in my testing of actual trades that by waiting to place my orders at a test of a Median Line or Upper/Lower Median Line until the first bar has tested and closed, I generally miss the losing trades where price hits the area and *zooms* through it, accelerating instead of stopping and reversing at the "most probable" line. Now that I've seen how price reacted at the area of confluence and at the Upper Median Line Parallel, let me see if I can diagram a set of orders that will give me a solid risk reward ratio:

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I want to get short at a re-test of the blue Upper Median Line Parallel, which is confluent with the 100 Percent Directional Energy Projections from A:B and C:D, so my limit sell order is at 598.10. My initial stop loss order will be three ticks above the 599.80 double tops at 600.10. And "eye balling" where price will intersect with the down sloping red Lower Median Line Parallel after a handful of bars, my profit target will be at 588. That gives me a risk reward ratio of just over 5, which is more than acceptable. I enter my limit sell order into the market and at the same time, I put my initial stop loss order in. Let's see what price does now:

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Price throws me a bit of a curve ball and spikes lower, closing near its lows and I wonder if I'll get a chance to get short near the confluence area! But the next bar is the exact opposite of the spike bar lower, a mirror bar, that spikes back up and closes near its high. The market is apparently as nervous as I am, but I have my plan and I'll go with the plan. Let's see what develops:

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Price opens unchanged and then spikes higher, testing the blue Upper Median Line Parallel and in the process, getting me short at 598.10, but then as fast as it climbed higher, it turns back lower and closes near its lows. These are classic signs that price has has likely expended its Directional Energy at the 598 area. Once I get confirmation that my limit sell order at 598.10 was filled, I put in my profit order at 588.

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Price actually tests the blue Upper Median Line Parallel again, and again, it turns back down hard off the area of confluence and the wide range bar closes near its low--in fact, this bar is an outside bar lower, because it had a higher high than the prior bar and a lower low than the prior bar and it closed lower than the prior bar. And that's generally a good sign if you are short. That's also the third fifteen minute bar that has tested the blue Upper Median Line Parallel and failed, so I'd like to see price make some progress to the down side soon, please...

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Price makes more progress to the down side--finally! Price tests the blue down sloping Median Line, which is one of its "most probable" lines to the down side, so even though I am not using the Median Line as a profit target or even a partial profit target [though YOU could use the Median Line as an area to take profits or partial profits if the risk reward ratio works for you, or if you are scaling in and out of positions], the fact that price has now tested the Median Line makes me re-evaluate just where I am in my trading plan and how much risk I have "on the table." Why? It's possible that price may have expended its down side energy at the test of the Median Line and if that's the case, do I still want to be working my initial stop loss order or can I snug it closer to the current price action without being caught up in the noise? After a quick look at the chart, I decide to move my stop to *four* ticks above the 598.70 high of the day, to 599.10, because I want my stop loss order to be one tick above the even number 599. It may not matter, but it sometimes keep me in the market when floor traders are just running stops, so to me, it's worth the extra tick for peace of mind. I cancel and replace my stop loss order. Now let's see what price does:

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Price spends the next seven bars forming an erratic Energy Coil, but that isn't surprising with all the wide range bars we have seen today. Looking at the chart, I don't feel comfortable moving my stop order closer to the action yet, so I'll just have to wait for a better clue from price when it comes out of the Energy Coil:

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Price breaks below the Energy Coil by making a wide bar lower and price moves below the Median Line and also closes below it. Once this wide bar closes, I snug my stop loss order down to three ticks above the top of the 596.40 Energy Coil price just broke out of, which is also a swing high now. That makes my profit stop 596.70, so I am now playing with the market's money--always a good thing. The next three bars are narrow range bars, which make me pay attention, because price is coiling again, or re-storing energy. If I hadn't already moved my stop to just above the swing high, I'd be snugging it up after seeing these three narrow range bars form. The one saving grace of these three bars is that they all close below the blue down sloping Median Line. Since I've already snugged my stop order, there's nothing to do here but stay with the plan and watch for further clues from price:

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Price spikes lower with a wide range bar, making a new low for the day, and when this wide range lower bar closes, I snug my stop profit order again to three ticks above the 593.50 low of the Energy Coil, which is also an area well above the blue Median Line, to 593.80. If price has enough energy to get back above the bottom of the Energy Coil AND back above the blue down sloping Median Line, I'd prefer to get profit stopped out. The next bar also makes a new low for the day but it is a narrow range bar. If I hadn't already just snugged my stop profit order closer to the action, I would do so now, because the narrow range tells me price may be running low on directional energy.

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The next bar starts out making me uncomfortable, spiking higher, but then it spikes lower and closes lower on its lows. Remember, that makes it an outside bar lower, meaning the high was higher than prior bar's high and the low was lower than the prior bar's low and this bar closed lower than the prior bar. And remember that this type of bar generally bodes well for further down side action. The next bar is also a wide range bar and it moves to and through the red down sloping Lower Median Line Parallel, filling me on my Profit Target at 588 as it does so. Once I confirm that I was filled on my profit order, I cancel my stop profit order. This trade netted a nice $1010 per contract, which is a nice day's work. I liked the use of the prior two swings higher to measure the prior Directional Energy expended to the up side to confirm the re-test of the Upper Median Line Parallel as an area where price would likely run out of directional energy. I hope you found this trade interesting and informative. And I wish you all good trading! Act, don't Re-act!

hefeiddd

May 26, 2005

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May 27, 2005 Comments: Looking at the first chart, you can see I have price pretty well "blocked in" with dominant Median Lines, all found using the 'rocking technique" and the Autoforks RT software. Note that I marked two areas on the chart: 1) The 50 percent retracement from the 5/24/05 afternoon swing high at 1196.75 and the 1186.25 swing low from mid-day yesterday [5/25/05], which comes in at 1191.50 and forms solid confluence with the area where the nearly sideways red Median Line intersects with the up sloping blue Lower Median Line Parallel; and 2) The prior swing high at 1199, which forms overhead resistance that is not far above the nearly sideways sloping red Upper Median Line Parallel. As I look at the charts, about an hour before the morning session opening, prices are roughly 3-4 S&P points higher. Let's see how the morning session opens:

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Price gaps open higher, tests and peeks above the green longer term up sloping Median Line, but then closes back below it. Now that I have visually seen the first bar trade and close, I take a closer look at how I have price "boxed in," and two distinct trade ideas seem clear to me, and both are time dependent, in a sense. To make it clearer, let me state it this way: If the fifteen minute bars are closing OVER the longer-term green up sloping Median Line, I will be looking to sell a re-test of a specific area I marked as confluence at 1198 1/4. That means price would have to be testing the 1198 1/4 area when TIME also brought price to that area--I'm not interested in getting short at 1198 1/4 UNTIL about the time the red Upper Median Line Parallel will intersect with the green longer term up sloping Median Line. On the other hand, as long as price is closing below the green longer term up sloping Median Line, I am interested in getting long at or near the 1191 1/2 area, but only around the TIME when the red Median Line is intersecting with the blue up sloping Lower Median Line Parallel and the 50 percent retracement of the A to B swing. It's obvious by the opening fifteen minute bar that for the moment, the buy entry is closer to where price is trading, so let me diagram it, *BUT REMEMBER*, TIME must bring these orders into play when the test of the confluence is happening, or I won't be working the orders. Let me diagram the buy order for you:

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The orders look fine, but I am not going to work them *until and unless* time brings price near the 1191 1/2 price area when the red Median Line and the blue Lower Median Line Parallel are crossing. Let's see how price unfolds:

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Price spends several bars below the green longer term Median Line but then climbs above it and once there, it begins to form a tight Energy Coil. After roughly a dozen bars inside this Energy Coil, price finally closes a bit below the green up sloping Median Line. Now I note the it is past the time when the confluence at 1191 1/2 formed by the intersection of the red Median Line and the blue Lower Median Line Parallel. I discard the buy orders and now I'll diagram the sell orders, but again, these are equally time dependent: I won't work these orders until near the time when the red Upper Median Line Parallel intersects with the green up sloping Median Line. Here's what the orders look like:

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The orders look fine and I wait patiently. My limit sell order would be at 1198.25 and my initial stop loss order at 1199.75, which is three ticks above the swing high made several days ago. My profit target would then be a re-test of the day's lows, since I expect the locals may attempt to fill the gap if this market exhibits any weakness. So I am risking 1 1/2 handles per contract to make four handles per contract, giving me a risk reward ratio of 2.67, more than acceptable. Again, I won't put these orders into the market until time is about to intersect the green Median Line with the red Upper Median Line Parallel. Let's see what happens now:

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Price trades lower but then begins to climb back up again, and just as time is allowing the intersection of the green Median Line and the red Upper Median Line Parallel, I enter my limit sell order at 1198.25 and my initial stop loss at 1199.75. I get filled during the next bar, as price zooms through the confluence but shortly after I am filled, price comes back down and closes in the middle of the bar's range and about where I am short at. Once I get a confirmation that I am short at 1198.25, I enter my profit order at 1194.25. Now let's see what price has in store for me:

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Price does trade lower but then comes back to re-test the confluence area. I'm not wild about price climbing right back up here, but then, the ranges have narrowed to the point where there isn't enough price action forming to allow me to change my initial stop loss closer to the current price action without simply being at the mercy of the noise inherent in this market. I'll just have to wait and see how the plan I have in place is played out as the market unfolds:

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Price spikes higher, stopping me out of the trade for a 1 1/2 point loss. Although price and time met at the area of confluence I was interested in, the results I expected obviously did not happen. And that's why stop orders are so important. Solid risk reward ratios and good money management are more than half the battle if you want to be a successful trader. I hope you found this trade interesting and informative. And I wish you all good trading! Act, don't Re-act!

hefeiddd

Sept. 26, 2005

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Those of you that read the MedianLine updates and/or are members of the free forums know that I have been noticeably absent from all internet activity for the past four or five months. Here抯 what I have been doing for the past four or five months: I developed a trading course tailored specifically to help floor traders make the difficult transition from 搊ff-floor?trading. Through mid-September, I have taught roughly 20 full length trading seminars to Chicago Mercantile Exchange locals at Spike Trading, using examples of actual day-only trades in the E*Mini S&Ps, E*Mini Russells, U.S. 30 Year Bonds and CME currency futures. I 揻ine tuned?the content of the seminars as I watched traders come 搊ff-floor?and begin trading full time using the methodology taught at the seminars and it has been a joy to watch the community of successful traders using my methodology grow week by week. Once I took some much needed time off, I made an important decision: After ten years of trading in my own private trading room, I found that I liked being around other professional traders at the CME and so over the summer, I built a nice trading room at the Chicago Mercantile Exchange. This allows me to have all the technology I enjoyed at home in my private trading room and allows me to be around the professional traders that clear their trades through Spike Trading. Further, those traders that have taken the Market Maps seminar have access to me on a regular basis during the trading day. By moving my trading offices to downtown Chicago, I gain a support staff that will enable me to offer a great deal more free web and forum content on a regular basis. And now I have the staff and facilities that allow me to offer full-length basic and advanced seminars to anyone that wants to dig deeper into trading using Median Lines. Again, regular daily updates will now be back on the MedianLine web page beginning next week and I抣l be extremely active on the free forum as well beginning next week. I really appreciate all of you that have been members of my forums and patiently waited while I took some time off to pull all these pieces together. And as a 搕hank you,?the links below provide some very nice benefits and pricing that you won抰 find anywhere else.

Sept. 27, 2005

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Market Commentary for September 27, 2005: Today I'd like to show just what the floor traders that have been to the seminars at the CME are looking at and what they are doing with the set ups they are starting the day with. Each morning, before the markets open, I post the dominant Median Lines [or pitchforks], along with the variables used to reproduce those exact pitchforks on Autoforks software, on the seminar forum for all the markets I watch. The traders can then either draw the dominant pitchforks in by hand [on eSignal, for example] or they can simply enter the variables we post with the charts on the forum and the software automatically draws the dominant pitchforks for them--and of course, they can double check their own screens against the chart images I posted. On the chart above, you can see that I identified an area of potential confluence for them before the markets opened. Then they simply had to have the discipline and patience to wait for the trade set up to develop and put in the correct limit entry orders and initial stops. And if the market then let them in, they manage the trade using the money management techniques taught in the seminar. In this specific example, the confluence came in at 1217 1/2, so traders woould be buying a test of this area. The initial stop on the trade would be three ticks below the swing low of 1216, at 1215 1/4. The profit target would be a test of the either the blue up sloping Median Line [if price rocketed to test it immediately] OR the red down sloping Upper Median Line Parallel. This meant that the original profit target was at roughly 1226 and since the initial risk on the trade was 2 1/4 E*Mini S&P handles, the risk reward ratio on the trade was about 3.8, which is well above the minimum accepable level I take [2:1]. Note that IF you got into this trade, because you were long and you'd soon be selling against a down sloping profit target, you'd have to keep adjusting your limit sell order AND your risk reward ratio would decrease as time passed, so the sooner the trade hit payday, the better off you'd be. Let's see how the trade unfolded:

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Now looking at the second chart, you can see that the hardest part of this trade was waiting...and waiting...and waiting... And especially for ex-floor traders, this is a difficult thing to teach, so I have been finding out that the younger guys that have taken the class [right out of college] that never traded on the floor have a real edge in the patience area. Once folks got long, it seemed to take forever until it finally broke out to the up side, but you can see that once it began to move higher, it hit payday very fast. The only other difficulty with this trade was that it really wasn't possible to move your stop until about three bars from when the profit orders were hit, because price just kept coiling and coiling. To be honest, of all the traders that took the original trade, about two thirds exited the trade before price hit the Upper Median Line Parallel. But the ones that followed their trading plan hit a very nice trade today, getting out at roughly 1225 1/4, which gave them 7 3/4 E*Mini handles per contract [or about $387 before commissions per contract, with an initial risk of $112.50 per contract]. This is a good example of the type of trade entry and risk reward ratio I look for and teach in the seminars. I generally show examples of trades in Bonds, E*Mini S&Ps, E*Mini Russells, CME currencies and Dax futures. I wish you all good trading! Tim Morge

hefeiddd

Sept. 28, 2005

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Market Commentary for September 28, 2005: While speaking with floor traders at the CME that traded Eurodollar interest rate futures and also floor traders from the CBOT that traded both ten year notes and thirty year bond futures, it became clear that there were plenty of floor traders in those instruments looking to make the transition to "off floor" traders. Just as has happened in the other futures markets, the majority of the liquidity has moved to electronic trading--so they are no longer "paid" by the markets to provide liquidity. The problem with trading the eurodollar futures and the ten year notes and thirty year bonds off floor is that while they do make nice moves, they often have "dead periods," where the market stalls or "flat lines." So fifteen minute bar charts are generally filled with quite a few small range, directionless trading bars followed by a few large range trend bars [which generally comes after news in the morning] and then the market turns back to small rather directionless trading ranges. This lack of consistent movement means that traditional time-based bars are "skewed" by the dead periods. You can identify turning points, but if you use time based bars, tools like Median Lines are generally not as useful in these markets, because the dead periods cause price to "drift to the right" of any Median Line you might draw, even though price hasn't done a thing! So what can you do to trade these markets, using Median Lines? I borrowed a technique from a long-time MedianLine forum member, ramon: Tick based bars. Tick bars are formed when you track the electronic traded markets and form each bar by telling the charting package you are using to use XXX number of ticks per bar, instead of a set time frame. So in the example I am showing today, I'll be using 352 tick bars, which means that the charting package will count from 1 to 352 as it draws a bar. It will show the high and low of those 352 ticks in the one bar and then when the 352nd tick hits, the next tick will start a new bar. It's important to note that these charts are much more useful now that the majority of the volume comes in the electronic markets, because in the electronic markets, each actual trade is recorded as a "tick," while in the pit traded markets, prices are sampled or "polled" and you only get a regularly timed representation that has been recorded on a machine by the "pit committee" in each of these markets. Polled prices are much less exact than seeing every price that trades being recorded as a tick. If you have further questions, I hope you'll ask on the forum--This is a great technique for these markets! Now let's look at the pre-opening chart with the dominant pitchforks I posted on the seminar web site before the opening:

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On the chart above, you can see that before the market opens at 7:20 am, it's not clear where price will break out of its current trading range. But if you look at the chart carefully, you can see that shortly after the open, price should be working its way towards what will be an area of confluence. Will I be interested in buying or selling at that area of confluence? I honestly won't know until the market gets to the confluence and then tells me where its likely heading. So I mentally mark the upcoming likely area of confluence and hope that price will be "in contact" with that area when the confluence of the up sloping and down sloping lines occur. Let's see what happens:

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You can see that price broke above the down sloping blue Upper Median Line Parallel *before* price came to the area of confluence. This made me interested in getting long at the area of confluence, because the area of opposing forces[or oppositely sloping lines] is where price should find support now that it has broken above the Upper Median Line Parallel, as well as above the green Median Line. I calculate that the confluence comes in at 114 19/32, so I work a limit buy order at that price. And note that just below that level, there are double bottoms [at 114 18/32]. I'll hide my stops below those double bottoms, far enough away that the "market noise" won't take me out of the market. In this case, I put my stops 5 ticks below the double bottoms, at 114 13/32. And my profit target? Although the logical profit target is a move to test the red upsloping Upper Median Line Parallel, I generally find that bonds have one good solid point in them and if I can capture 20 ticks [out of the 32 ticks in one point], I'm doing pretty good. Although I sometimes will try to milk more out of day-only bond trades, especially if most of the trading day has passed, if I see 20 ticks, I grab them and book the profit. If the market lets me in on a test of the confluence area at 114 19/32, my 20 tick profit target would be at 115 7/32 and I'd gladly be out at that price. Looking at the chart, you can see that price let me in at 114 19/32 and then slowly began to climb higher. This trade ran for a good chunk of the day, and I only found one area that allowed me to hide profit stops: Price left triple bottoms at 114 27/32, so once they formed, I snugged my stops to 3 ticks below them, to 114 24/32. Once I snugged my stops, price continued to move slowly higher, finally hitting my profit target at 115 7/32, giving me my 20 ticks without much heat in the process. These are the types of bond trades I look for on a regular basis, though it is often more difficult to find areas of confluence in the bonds and notes using tick charts, so I'll then rely on the support or resistance formed by a Median Line or one of its parallels and then use an area of double tops/bottoms along with the particular line as "confluence" to form an entry area. I have now taught a handful of seminars devoted to trading bonds with this methodology and the traders that have taken the seminar and are regularly watching tick based charts and trading with this methodology are generally seeing three quality trade set ups like this a week, and then a handful of smaller moves that are tradable as well. I hope this was an interesting example, with a different twist [tick based bars] that will give you all more to look at and think about. And I wish you all good trading! Tim Morge

hefeiddd

Sept. 29, 2005

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Market Commentary for September 29, 2005: Today was a very profitable day for the traders that paid attention to the area of opposing lines of force I marked before the opening on the seminar forum, which came in at the 656.60 level. There was quite a bit of news out before the market opened. And once the market reacted to the news in the first few bars after the opening, it was important to wait for the trade to "set up," which in this case meant that not only did price need to get to the 656.60 area, but because the trade set up was dictated by what price did when it neared the crossing of opposing lines of force--meaning one line that was up sloping and one line that was down sloping--It was important to wait for "time" to bring price "to" the area of the opposing lines of force. Why? In the seminars, I teach this trade set up as a "test and re-test" of an area of confluence and it's what price does once it reaches the area of confluence that tells you whether you want to get long or short! So until you see both price and time set up at this area, you don't have the likely direction of the trade. For floor traders making the transition and many traders that are used to being more active, it's often difficult to wait for "price to play its hand," but that waiting and seeing what price does once it reaches the area of confluence is what gives this trade set up such a high probability of success [I find that this trade set up, in my own actual trades, has a probability of success of well over 75 percent]. So there's nothing to do until enough time has passed to bring price TO the area of confluence. And IF there is going to be a high probability trade in that area, it happens because price interacts with the area of confluence. This means that you are waiting for both price and time to align, and you simply must wait. Once price began to approach the area of opposing lines of force, it became clear that a trade set up from the long side was developing. The trade was simple, for the traders that waited: Buy a test of the area of confluence--as time brought price into the area of confluence--at 656.60, with an initial stop 7 ticks below the prior 655 swing low, which gave me an initial stop of 654.30. The profit target on the trade could have been either a test of the up sloping blue Median Line [which ended up coming in at the 665 area by the time price and time met the Median Line] OR you could have chosen to wait for a re-test of the prior swing high at 665.90, which is how I diagrammed out the trade before entering orders and how I played out the trade. Both profit targets would have been very profitable and either would have been more than acceptable. As I diagrammed out the trade prior to entering orders, the risk reward ratio was just a touch above 4:1, which is very nice. The slightly lower profit target have would made little difference in this ratio...Let's see how the trade played out:

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Once time and price entered the area of confluence, I had no problem getting long at 656.60. Once I had confirmation that my limit buy orders were filled, I checked that my initial stop loss order at 654.30 was still being worked and then I entered my profit order at 665.90. About 90 minutes later, price left a nice swing low at 659.50 and once price headed back higher and made a new high for the move, I snugged my stop order to 7 ticks below this new swing low, which gave me a profit stop order at 658.80. Now I'm playing with the market's money, and that's always a good thing! Once prices began to climb again, they literally went "vertical," filling my profit order several bars later for a nice $930 profit per contract, which is a very nice day's work, on or off the floor. Obviously, I could have squeezed out several more Russell handles in profits but the test of the prior swing high seemed to make good sense to me and we're just now beginning to see the market ranges expand after a long summer of smaller ranges, so being greedy made little sense after so nice a run. I hope this was an interesting example. The success of the trade relied on waiting for time to bring price into the area of opposing lines of force--and that required first correctly identifying the area of confluence and then waiting for time and price to set up together. And again, patience is often in short supply with many traders, so if that rings a bell in your own trading, try writing out your trading plan before the day starts and then make it a habit to evaluate whether you stuck with your plan as the day unfolded. For any of you interested, I'll be more than glad to send you a copy of the trade plan work sheet I pass out to all the floor traders that take the seminars--you might find them useful in your own trading. If you'd like a copy in excel format, just drop me an email at: Email me at: tmorge@spiketrading.com and ask me for a copy of the trade set up sheet. And if you get a copy and have any suggestions, please email me back with them. I'm always trying to improve the trading tools I use, both in my own trading and when I teach other traders how to improve their trading. I wish you all good trading! Tim Morge

hefeiddd

Oct. 1, 2005

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Market Commentary: October 1, 2005: This weekend I want to give you all a peek into why I continue to offer free forums, host free web sites, and give seminars and webinars: The interaction with other traders is priceless, and whether I am talking with someone just starting out or a market veteran of 40+ years, I generally take something away from the conversation. About three weeks ago, it was my pleasure to have a trader take my seminar at the CME that has been a floor trader for well over 30 years. When I first became a professional currency trader for a bank in Chicago, this gentleman was a very large force in the currency markets, though people outside of Chicago probably had little knowledge of him, since the IMM [what we now call the CME] was well under the radar in those days. But back then, when my floor broker called me and told me that this gentleman was buying Canada or Deutsche Marks or selling Swiss Francs, I learned quickly to pay attention. And later, as I became a 搒ize?trader on my own, I had days where he was buying and I was selling桝nd neither wanted to budge! These days will always stick out on my mind. And so it was with some nervousness and a little pride that I started my seminar that day and as my presentation went on, I did my best to forget he was one of the people in attendance, so that I covered all the materials as I normally do, to be fair to all the other people attending that day. Since the day of that seminar, I抳e been a regular visitor to his office, at his invitation, and he is now using Autoforks software as part of his daily approach to the markets. One day several weeks ago, he asked what markets I regularly follow for seminar attendees on the seminar forum. And he asked if I would post the CME Canadian Dollar chart, along with the dominant pitchforks and their settings for Autoforks, because he felt a 15 percent or more move was setting up. I assured him I抎 begin putting the chart and the software settings up every morning, which I抳e been doing ever since. He didn抰 tell me which way he thought it was going梐nd perhaps he was 搒poofing me?to see if I抎 put it up for him. But I have a long history of trading Canada, so I already had a great deal of chart work done and it was little work to begin adding it to the daily seminar forum posts. At first, nothing much seemed to be setting up. There was movement, to be sure; In fact, price rallied three cents [300 IMM points] the week he asked me about it, but prices failed to make it above a regional major swing high, so it wasn抰 clear if he was expecting a 15 percent move higher or lower. But several days ago, I posted a very interesting pre-opening chart on the seminar forums, and here it is:

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When I work with seminar attendees, I try to get them to learn the higher-probability trade entries first, because they show up regularly but not quite as frequently as some of the other entry techniques I use when trading with Median Lines梞ainly because several conditions must be met for the higher probability trade set ups to be 搃n play.?In this case, price was in an up trend. And I had drawn in a Modified Schiff Median Line that was gently down sloping. When I looked carefully at the chart, I noticed that if I measured the amount of directional energy price spent going from the last swing high at 8580 to the last swing low at 8495, a move of 85 points, and then projected that same size of movement from the just-made swing high at 8571, I got a projected swing low of 8487. And looking at the down sloping Schiff Median Line抯 Lower Parallel, I saw that IF price spent that same amount of downward directional energy, price should run out of energy at the confluence of the Lower Schiff Median Line Parallel and the 100 percent directional energy projection, right at 8487. This area of confluence should be a high probability area to try a long position, if price gave me the opportunity. I generally use fifteen tick stop loss orders in the Canadian Dollar and in this case, if price ran through this area of confluence by more than ten points, I抎 no longer have confidence that this trade had any merit, so the size of my stop made sense. And so I worked an order to get long Canadian Dollars at 8490, 3 ticks above the projected confluence, with a stop 15 ticks lower, at 8475. And although I generally have an upside profit target [because I generally day-trade], IF this trade was successful, I planned to hold it overnight and run 24 hour GTC [Good until cancelled] orders with Spike抯 order desk. But should I get a ten to fifteen percent upside run and catch a good portion of it, I抣l only be risking 15 ticks, which is my standard day trading stop loss amount梥o in this particular trade I know the risk reward ratio is MUCH greater than my minimally acceptable 2:1 by any measure.

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Price came down and tested the Lower Schiff Median Line Parallel, getting me long at 8490 in the process, and then turned higher. Once I saw my entry price print, I double-checked my electronic trading platform抯 audit trail to be certain I had exchange confirmation of the fill on my limit buy order. And once that was done, I checked to make certain my stop loss order at 8475 was in the market and working. Since I am trying to work my way into a longer-term trade, there is no upside profit target sell order for me enter at this point, so I simply monitor price as the day goes on. I note that price makes one more stab lower later in the day to test the Lower Schiff Median Line Parallel, leaving a double bottom at 8486 in the process, and then slowly begins to head higher.

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The next day, price touches the Schiff Median Line but then sells off in a wide range bar lower, moving below the 8486 double bottoms as it makes a new low of 8481. I抦 not stopped out yet, but it feels like I am just about to watch the trade turn into smoke in front of my eyes.

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Just as I am certain I will get stopped out, price turns higher, leaving new double bottoms at 8481. And two bars later, price has sprinted above the down sloping Schiff Median Line. As soon as price moves above and closes above the Schiff Median Line, I draw in a new 搕raditional?Median Line, from pivots B-C-D. IF price has indeed made a significant bottom and is now heading higher, this new Median Line should give me the general direction and slope of the new trend. Again, because I am longer-term trading, I am working no profit targets yet and I don抰 yet see a formation that I feel I can 揾ide?my stops behind梞ore about that later.

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Price moves in a narrow range the rest of the day, but doesn抰 pull back from its spike high well above the red down sloping Schiff Median Line. And early the next day, price tests the red down sloping Upper Median Line Parallel. At the moment, it would appear that price has put in a significant bottom and I may have entered at a low-risk area with a very inexpensive stop loss , but only time will tell if the recent swing low will hold up.

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Price then breaks out of the consolidation or Energy Coil to the down side, heading lower and testing the red down sloping Schiff Median Line. In one price bar, half my potential profits have disappeared and I wonder to myself if price will stop at the blue up sloping Lower Median Line Parallel, where Median Line theory tells me price SHOULD run out of down side directional energy.

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In fact, price runs out of down side directional energy at the Schiff Median Line and doesn抰 get a chance to test the blue up sloping Lower Median Line Parallel before it turns up hard. In fact, price makes a new high for the move the very next bar, and the next bar closes above the red Upper Schiff Median Line Parallel. Price finishes out the day with a small pull back, trading right around the Upper Schiff Median Line Parallel. Early the next day, price trades lower again, breaking below the Upper Schiff Median Line Parallel but failing to close below it during two consecutive wide range bars. These bars not only close above the Upper Median Line Parallel, they also leave double bottoms at 8537, and I marked them on my chart as a potential significant low, but some time must pass before I can say that with any certainty.

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Price climbs higher the rest of the day, eventually breaking and closing above the blue up sloping Median Line. It closes near its highs for the week and as the day comes near an end, I cancel my initial stop loss order at 8475 and move it higher to 5 ticks below the 8537 double bottoms price made earlier in the day. If you look at the closing chart carefully, you抣l see that a move below these double bottoms would also be a move below the confluence formed by the Upper Schiff Median Line Parallel and the blue up sloping Lower Median Line Parallel. Price SHOULD run out of down side directional energy at or before this area and if it doesn抰, I prefer to be stopped out with a nice profit. Then I can take a step back and re-evaluate the market. Remember: I can always look for a new entry! For those of you that have asked for some entry set ups other than test and re-tests or zoom and re-tests, this is what I call a 搇ine?trade, which means I bought at an area where price would be testing a Median Line or one of its parallels, without the benefit of the 搑e-test?to help filter out the potential acceleration of price through the line I am trying to buy against. But the directional energy measurement I diagrammed out in the first image gave me more confidence that this area would hold or contain any down side movement. And most important, if I was wrong, I was working a stop of 15 ticks, which is $150 per contract in the Canadian Dollar. This is my normal day trading stop in this currency, so it is more than acceptable in this case because I am looking for a larger move over multiple days or even weeks. This type of "stalking" a trade can be used in stocks or any of the commodities and or currencies. My one caveat would be this: NEVER turn a day-trading position into an overnight position UNLESS this was your original plan. Even should the trade then work out, you would be starting down the slippery slope of deviating from your trading plan and that is very difficult to recover from. It can devastate a trader! Always stick with your plan.

I hope this was an interesting example. I always suggest traders try writing out their trading plan before the day starts and then make it a habit to evaluate whether they stuck with their plan as the day unfolded. For any of you interested, I'll be more than glad to send you a copy of the trade plan work sheet I pass out to all the floor traders that take the seminars--you might find it useful in your own trading. If you'd like a copy in excel format, just drop me an email at: Email me at: tmorge@spiketrading.com and ask me for a copy of the trade set up sheet. And if you get a copy and have any suggestions, please email me back with them. I'm always trying to improve the trading tools I use, both in my own trading and when I teach other traders how to improve their trading. One last thing: More than a few of you have now emailed me in the past few days asking specific questions about the seminars and mentoring sessions. I have a list of all of you that have asked and I will be sending each of you, individually, answers to your questions--but I cannot give you concrete answers until we make one last crucial test on the software we plan to use for on-line seminars and mentoring, and for most of you, I am going to suggest you'll get just as much out of the seminars by attending them via a secure internet connection that will will allow you to ask all the questions you want, real-time, and also allow me to draw specific examples in response to all of your questions. This way, you won't have spend time and money travelling to Chicago, at least for a seminar. When we offer multi-day advanced seminars, it may make more sense to plan a trip. But that's up to each of you to decide. In any event, look for private emails from me in the next few days. Have a great weekend! I wish you all good trading! Tim Morge

hefeiddd

Oct. 3, 2005

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Market Commentary: October 3, 2005: Today I'm going to feature a text book Energy Point example. The key to making the transition to a consistently successful trader is to learn to identify repeatable trade entry set ups and then once you enter a particular trade, how to use solid money management to "box in" profits to try to maximize the ride once you're in the trade. The chart above is the E*Mini S&P fifteen minute day session only pre-market chart from the seminar forum. I currently post pre-market charts like these on E*Mini S&Ps, Nasdaqs, Russells, Dax, 352 and 1408 tick bond futures, Euro FX, Canadian Dollar, Mini-Crude and Lean Hogs [Yes, Lean Hogs are fun to trade...I am adding Soy Meal to tomorrow's forum for another trader]. These pre-opening charts are generated using Autoforks software and along with the charts themselves, I also post the settings that allows anyone using the software to simply put in the variables for each pitchfork on a given chart and then change the color, and that makes it very easy for traders just learning about Median Lines to "see" what I am seeing BEFORE the market opens and to put together their own game plan, in writing, before the markets open. Since there is a nice little community of traders trading directly at Spike using Median Lines now, they've all started to form their own small trading groups, generally 3-5 traders per group. So before the open, they all work first on setting their charts up, beginning with reproducing what I've already posted for them, and then adding anything they see or someone else in their group points out. And of course, I spend about 45 minutes before the S&Ps open going from group to group, seeing if anyone has any questions and if they found something I missed entirely when I ran the pre-opening charts. If there's a software problem or a data problem, one of the customer service techs tries to solve it well before the markets open [If it's simple, I give it a go...]. Note that I pointed out two areas of interest before the markets opened this morning. I generally try to circle confluence or areas of lines of opposing forces and this morning, we had three quality lines crossing right at 1238, which caught my eye immediately and we also had a good area of confluence at 1230-1231, which coincided with Friday's lows. I wanted both of these areas to be on each trader's radar, because how price reacted at these key levels would likely call the tune of the day.

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Looking at this second chart, you can see that once price tested the Enery Point area at 1238, I got short on the re-test, right at 1238 and then used an initial stop of 3 ticks above the 1238 3/4 high of the bar that just tested the Energy Point, at 1239 1/2. My profit target was a test of the conluence below that came in near Friday's low, at 1231. This means I was risking 1 1/2 S&P points to make 7 S&P Points, which gave me a risk reward ratio of 4.67--very nice, indeed. Price came back to test the 1238 area, getting me short the very next bar. And two bars later, price hit my profit target at 1231, at the confluence and near the lows of Friday. It was a very nice, quick and clean trade that netted seven S&P points, or $350 per contract before commissions. Though several traders were tempted to get long at the 1231 area with a stop 3 ticks below Friday's swing lows, only one took the trade, and after roughly four hours of torture, he closed his trade out with a small net gain and went home to prepare to watch the White Sox playoff games tomorrow... For those of you that are curious, there was a nice trade in the bonds, a very nice long in December Lean Hogs and of course, I'm still in the Canadian Dollar trade I high-lighted in the weekend update. I wish you all good trading! Tim Morge

hefeiddd

Oct. 4, 2005

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Market Commentary: October 4, 2005: Today was one of those days that, if you were in my position, was as fascinating as it was profitable. If you look at the two charts above, you can see what I posted to the seminar forum before the markets opened. And as I spoke to the traders before the opening, I reminded them that price has been in a very tight energy coil since Friday [from 1230 to 1235], except for one quick spike higher on an opening that failed miserably. And one thing is always true: If you put 20 or 30 traders in a trading room and let them trade in a range, you will see a variety of ideas and positions, all within the range. Some of them will decide it IS a range and they'll trade it as a range, from one side or the other--or if they are really convinced it is a range, they'll buy near what they think is the low end of the Energy Coil with a solid money management stop and then try to reverse to short once price tests the top area of the Energy Coil. And some of them will be certain there will be a breakout coming--and amongst this group, some will be sure it is coming to the upside and some will be sure it is coming to the downside. And last, a few will think it is too dead to bother to trade on a day like today [at least, the first 75 percent of the day was dead...]. So after I pointed out the solid Energy Coil we have been trading in, with a top of roughly 1235 and a bottom of roughly 1230, I also pointed out two areas where lines of opposing force gave important confluence: 1234-35 and 1229-30. Frankly, I teach traders how to take advantage of Energy Coils, as well as areas of confluence, so it doesn't bother me to see diverse opinions. In fact, I often see that ten or more traders look at the same pre-opening chart and hear the same pre-opening comments from me and then as the day unfolds, some will find an area to get long and some will find an area to get short. And odd as it sounds, since they both started with the same material and went through the same seminars, both often make money. There are many ways to skin the cat, as they say...and the markets often give you many different opportunities, no matter what your view point IF you have a solid game plan and solid money management in place. Today, I saw traders getting long at 1230 1/2, with a stop 3 ticks below the 1229 3/4 prior lows at 1229, ride their positions up to the 1234 1/2 area and take profit. And I saw another group of traders getting short at 1234-1235, with stops placed above the 1235 1/2 high of the day made in the first hour of trading ride their shorts down to the confluence at 1230 1/2, where they took partial profits...and then as time was running out [around 3 pm], take their profits at the 1218 area. I was one of the traders playing it from the short side [because I was also looking at a longer-term down sloping Upper Median Line Parallel that had caught the prior swing high at 1242 1/2 and we were testing that same Upper MLH again today, so I was bearish coming in...] but there were plenty of traders that made nice money being long. And several that got long, then short, then long again, and then finally reversed to short to catch the ride lower...

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The above chart marks what I was looking at and doing as the day unfolded, but as I said above, you could have skinned this cat many different ways. I often get asked if there's going to be a problem if I teach my methodology to too many traders, especially now that I am teaching it to some very experienced traders that can take sizable positions. And my honest answer is that because each trader is SO different, and we all approach markets in our own way, in different time frames, with different risk tolerances...It just won't matter. So many times, when I am taking profits, someone looking at a similar chart is entering in the opposite direction. That's just the nature of the markets. And although the last 25 percent of today was a sizable move, the first 75 percent of the day was the same five point day in the S&Ps we'd been seeing since Friday, so money management and a solid plan was crucial. If you had gotten chopped to death trading an Energy Coil BACKWARDS [meaning selling the lows and buying the highs] for the first 3/4's of the day, you wouldn't have the emotion or clarity left to catch the huge run down that came later in the day and was the "frosting on the cake." For those of you still reading...the key to catching the big move today was being aware of the longer-term charts. I did not give them to the seminar group today, because I have been stressing that it's important for each of them to do their own homework and so, even though I do give them settings for Autoforks and pre-opening charts, as well as some solid commentary on what I expect are key areas we'll likely see, I expect them to learn from experience the value of also knowing the "big picture" IF they are the type of trader that wants to hit all the bases when the ball is there to be hit. For those of you that have asked...seminars are now available to off-floor traders--you no longer have to be a clearing member of either the CME or the CBOT. You can take the first level seminar at the CME generally each Wednesday and within the next few weeks, we'll be offering them live via the internet over secure software at the same time we do the regular seminars--meaning you can attend from home or your trading office if you wish, instead of travelling to downtown Chicago. We'll then be adding advanced seminars and mentoring. And if you think you'd like to trade in a large trading room, alongside a group of professional traders that trade everything from stocks to bonds to cash currencies to stock index futures to live hogs...Spike has already added about fifteen people to their trading floor after they took the seminar, so that option is open as well, if it sounds appealing. Those that choose that route get to interact with a large group of traders all day long, a few with only a year or two experience, but many with well over twenty years of experience as professional traders. And I'm there trading and talking to the other traders all day long as well. Last, I mentioned on the forum [which may be slow or may be down again...I am checking it as I write this] that I'll announce a mini-webinar--I'll probably make the announcement of the date and time sometime tomorrow--and that will be to test the software we've chosen to use for the on-line seminars and mentoring. And so that anyone that attends the test will get something for their time, I'll do a small webinar with some nice content, both as a "thank you" and so that I get more practice using the new multimedia software. All of you are invited...I'll post the date and time tomorrow. I wish you all good trading! Tim Morge

hefeiddd

Oct. 5, 2005

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Market Commentary: October 6, 2005: Today was another very profitable trading day for those willing to wait for the markets to sort themselves out, and then find a high-probability trade entry set up in the likely direction. With so much late-day action in the past two days, I think many traders expected today's action to earlier in the day--almost because that would be "different." But the market is what it is...it does what it wants to do, not what we want it to do. The concern I had that I shared with the traders at Spike was that with the unemployment number out tomorrow morning [Friday], the market might simply coil all day long after moving so far, so fast in two days. As I told them yesterday in the pre-opening brief, the key would be to patiently wait for the market to show signs of a trend and then not enter a trade until you recognized a trade set up that you are capable of trading. Successful trading is much like baseball, where the successful hitters are the ones that wait for a pitch they can recognize AND hit before swinging. Too many traders think they have to swing early and often, no matter what's going on, because they MIGHT hit something that adds up to a winner. Much like yesterday, I didn't recognize a trade entry I liked until nearly mid-day. Although these charts are not posted here today, the longer-term daily S&P charts that I have been trading from have been calling for a test of 1190. As mid-day approached with the market unable to mount any serious attempt to rally back to test any of the major overhead resistance, it seemed likely that the downside would again be the path of least resistance, and so I watched carefully for an area and a trade set up to attempt a short position.

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Finally price zoomed below the pink down sloping Median Line--and in point of fact, I had to wait for it to zoom a second time, because the stop on the first potential trade entry set up was too expensive for my taste--and so on the second zoom below the pink Median Line, I found a trade set up that I liked and that carried a risk reward ration I liked, as well as an affordable initial stop loss. I sold E*Mini Russells at 648.60, which was the re-test of the zoomed Median Line and my initial stop was 7 ticks above the just made 650.50 mini swing high, at 651.20. My profit target in was tied as much to the daily charts I keep as to the blue First Warning Line I have marked on this chart. The 1190 target that I had in the S&P dailies correlated to a similar area in the Russells at roughly the 636 level, and as you can see on this second chart, that's where price headed, making it easily before a rally of any significance. I put my profit target 7 ticks above the blue First Warning Line, at 635.90. This was a nice clean trade that yielded 12.7 points in the E*Mini Russell, which is a very nice $1270 per contract before brokerage. Price has now gotten to a level on the daily charts where I am more than a little leery of the short side. I have had this area on the daily charts marked for several weeks and I am quite happy to have found places to get short three days in a row that allowed me to catch the majority of the move down, while holding no risk overnight. Again, the key is to let the market first settle down and show you its direction and then to look for a trade set up you can trade [not one someone else can trade]. And the trade set up has to have a good risk reward ratio and a stop loss you can afford. In the Russells, I don't like initial stop loss orders greater than 3 Russell handles, no matter what I think the profit potential I wish you all good trading! Tim Morge

hefeiddd

Oct. 6, 2005

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Market Commentary: October 6, 2005: Today was another very profitable trading day for those willing to wait for the markets to sort themselves out, and then find a high-probability trade entry set up in the likely direction. With so much late-day action in the past two days, I think many traders expected today's action to come earlier in the day--almost because that would be "different." But the market is what it is...it does what it wants to do, not what we want it to do. The concern I had that I shared with the traders at Spike was that with the unemployment number out tomorrow morning [Friday], the market might simply coil all day long after moving so far, so fast in two days. As I told them yesterday in the pre-opening brief, the key would be to patiently wait for the market to show signs of a trend and then not enter a trade until you recognized a trade set up that you are capable of trading. Successful trading is much like baseball, where the successful hitters are the ones that wait for a pitch they can recognize AND hit before swinging. Too many traders think they have to swing early and often, no matter what's going on, because they MIGHT hit something that adds up to a winner. Much like yesterday, I didn't recognize a trade entry I liked until nearly mid-day. Although these charts are not posted here today, the longer-term daily S&P charts that I have been trading from have been calling for a test of 1190. As mid-day approached with the market unable to mount any serious attempt to rally back to test any of the major overhead resistance, it seemed likely that the downside would again be the path of least resistance, and so I watched carefully for an area and a trade set up to attempt a short position.

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Finally price zoomed below the pink down sloping Median Line--and in point of fact, I had to wait for it to zoom a second time, because the stop on the first potential trade entry set up was too expensive for my taste--and so on the second zoom below the pink Median Line, I found a trade set up that I liked and that carried a risk reward ratio I liked, as well as an affordable initial stop loss. I sold E*Mini Russells at 648.60, which was the re-test of the zoomed Median Line and my initial stop was 7 ticks above the just made 650.50 mini swing high, at 651.20. My profit target was tied as much to the daily charts I keep as to the blue First Warning Line I have marked on this chart. The 1190 target that I had in the S&P dailies correlated to a similar area in the Russells at roughly the 636 level, and as you can see on this second chart, that's where price headed, making it easily before a rally of any significance. I put my profit target 7 ticks above the blue First Warning Line, at 635.90. This was a nice clean trade that yielded 12.7 points in the E*Mini Russell, which is a very nice $1270 per contract before brokerage. Price has now gotten to a level on the daily charts where I am more than a little leery of the short side. I have had this area on the daily charts marked for several weeks and I am quite happy to have found places to get short three days in a row that allowed me to catch the majority of the move down, while holding no risk overnight. Again, the key is to let the market first settle down and show you its direction and then to look for a trade set up you can trade [not one someone else can trade]. And the trade set up has to have a good risk reward ratio and a stop loss you can afford. In the Russells, I don't like initial stop loss orders greater than 3 Russell handles, no matter what I think the profit potential of the trade is, because that is just too much money per contract for me to risk, relative to what I normally make on a single trade. So even if I identify a nice trade set up, if the stop loss is too expensive, I'm always content to pass on the trade, confident I'll find a set up I can trade with a stop loss I am more comfortable with. A fine trader at Commodities Corporation, where I once managed money, was fond of saying, "Take care of your losses and your profits will take care of themselves." Amos, those are words to live by and I always think fondly of you when I quote them. I wish you all good trading! Tim Morge

hefeiddd

Oct. 11, 2005

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October 11, 2005 Morning Comments: Prices have been trading in a solid down trend now for more than five trading days. The key to profitability in this run lower has been to look for solid trade set ups that come at lines that have previously been tested梐nd of course to trade with the trend. And while last week抯 best trade set ups seemed to come in the late morning or even at mid-day, today you抣l see that there was a gorgeous test and re-test sale at the Major down sloping Median Line that has been 揷alling the tune?all of last week that came within the first 45 minutes of trading. Again, it was the quality of the trade set up and its proximity at a tested major line that really made this trade entry jump out at me. The first chart, above, shows you the 揷lose in?look of the pre-market chart posted on the seminar forum. The second chart is a longer-term perspective, so traders can see where the lines originated from and IF they抳e been tested in the past and how well price respected each line in the past

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You can see I found two solid entry areas at the re-test of the major green down sloping Median Line. The first trade came at a test and re-test of the green Median Line, with a limit sale at 1197 ? an initial stop loss three ticks above the 1198 high of the day, at 1198 ?and a profit target at the test of the 1st red up sloping warning line [which was also one S&P point above Monday抯 1189 ?low], at 1190 ? Price then climbed out of the hole, though I didn抰 see any solid long entries that carried acceptable risk reward ratios [nor was I looking to get long, to be honest, until price proved it had already changed trends] and headed back towards the same major green Median Line. And once price got close, I put in another set of orders: I sold S&Ps at a limit of 1196 ? with the same initial stop loss three ticks above the 1198 high of the day, at 1198 ? This entry was a straight sell at a tested major line and I expected that if price headed lower from here, it would likely take out the day抯 lows and head to test the 2nd red warning line, which came in at roughly 1186 ? Price did get me short and did head lower, breaking well below the day抯 prior low and making a low of 1187, ?a point from my profit target on the trade. As 2:30 pm rolled around, I exited the trade at 1188, locking in a second nice profit on the day. I have said here on this page too many times to count: When you find a line that works, beat on it until it beats you. So far, this green Median Line has been golden! I wish you all good trading! Tim Morge

hefeiddd

Oct. 12, 2005

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October 12, 2005 Morning Comments: As I said yesterday, the green down sloping Major Median Line has been "calling the tune" all of last week and so far this week, nothing is different. As you'll see on the next chart, this Major Line again was the key to the entire day--if you had this line marked on your charts and sold against it, using 3/4's of a S&P handle above the prior swing high as your initial stop loss , this would be the ninth straight trade in a row, ranging with profits from a bit more than five S&P handles to more than 16 handles, all intraday! This has truly been a golden line... Once again, the first chart above shows the zoomed in pre-market view that's posted pre-opening on the seminar forum, right before I give 15-20 minutes of live commentary to the traders that normally trade the index futures. My message today: Don't try to make trading more difficult than it is: There's a high probability line staring you in the face. Beat it and beat it until it beats you. IF price makes it back to test the green down sloping Major Median Line, let it test it and then unless it accelerates to the upside THROUGH this line and closes above it, sell the re-test and hang on for the ride. Your stop would then be just above the prior swing high OR just above the high of the just made test bar--and if you can afford to use both as stops, use the higher of the two stop prices as your intital stop. My bit of caution was that it would be very dangerous to anticipate any change in trend UNTIL price has clearly shown us it HAS turned. There will be plenty of opportunity to buy against formations, using high probability trade set ups once price has shown it has changed direction...but it's a down trend until it is no longer a down trend. I know these sound like simple things, but they can be hard to keep in the front of your mind. How many traders are actually willing to sell against the same line the ninth time price tests it, even if they made money the last eight times? Human nature tells us all it cannot last, and so too often, traders try to be the one that "knows" this will be the time price breaks through that golden line--nothing lasts forever, right?

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Today's trade was extremely profitable and as I said, it was based on the same green down sloping Major Median Line that I have been selling over and over again. Every once in a great while, there is a Median Line that acts like a price magnet, pulling price back to it, but yet, each time price approaches it, it turns on a dime. And when you find those Median Lines, just work them over with no mercy! Note that I added an inside sliding parallel to the pre-opening chart today--in fact, I added one and then added another an equal distance below it. Price has been well contained by the first sliding parallel, but IF price breaks below the initial sliding parallel, think of the second sliding parallel as one of the outside parallels of a Median Line--and I'd expect price would run out of downside directional energy at or near the second sliding parallel. Here's the trade in its simplest form: I waited for price to test the same green down sloping Major Median Line. Then once that fifteen minute bar closed, I measured where price would intersect with the Median Line and put in a limit order to sell E*Mini S&P futures, which in this case came in at 1194 1/2. The initial stop on the trade was three ticks above the 1196 1/2 prior swing high, made yesterday afternoon, at 1197 1/4. And if you think of price being contained in a relatively narrow down sloping Energy Coil bounded by the green down sloping Median Line and the first green sliding parallel below it for the past three days, I'd expect price to run to test the second sliding parallel IF it broke through the downside of this down sloping Energy Coil. And looking at the charts, you can see that I had a confluence formed by the second green sliding parallel and the blue down sloping Median Line that came in right at 1178. This seemed like a very logical profit target to me, although at one point I contemplated simply letting price run and closing the trade MOC [Market On Close], in case the price fall accelerated as the afternoon progressed. But using price targets are much more to my liking, so I used the 1178 area as my profit target. I also have a prior gap at the 1178-1179 area, along with a Major Median Line on the daily charts that gives some support around the 1175 area, so all of this fit with taking profits at 1178. The key to this trade? Sometimes the obvious and the simple is the best. Why make it more complicated? This trade netted a hefty 16 1/2 S&P points, which is $825 a contract before commissions. Simple can be a very good thing. I have said here on this page too many times to count: When you find a line that works, beat on it until it beats you. So far, this green Median Line has been golden! I wish you all good trading! Tim Morge

hefeiddd

Oct. 13, 2005

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October 13, 2005 Morning Comments: I'm proud to say I leaned on the same green line [with a slightly new twist] and made the tenth nice profitable trade off the "golden line." As I've been telling the seminar traders all week, don't expect to find a line this reliable, with this long a life, very often...But keep going to the well until the well dries up [or the until you run out of metaphors]. As I have been saying all week, the green down sloping Major Median Line has been "calling the tune" and again, nothing was different today. As you'll see on the next chart, a variant of this Major Line again was the key to the day's high probability entry. Although a little thought and a little magic were involved, this remains a truly golden line... The first chart above chronicles the first nine times price tried to make it back above the down sloping green Major Median Line, once price had zoomed below it. And you can see that every time price tested the Major Median Line, you could have sold the re-test and put your stop three ticks above the prior swing high, which came at the prior test of the same Major Median Line, and never gotten stopped out--and if you were day trading and using anything that remotely looked like intelligent profit targets, you'd have been hard pressed to take out LESS than five S&P handles on the worst day of this run, and it was pretty easy to take more than fifteen handles yesterday. There wasn't any creativity involved [until today's trading]: It's been a nice run of simply selling the re-tests of the same line, day after day, and then booking your profits. As I said yesterday, I know these sound like simple things, but they can be hard to keep in the front of your mind. How many traders are actually willing to sell against the same line the ninth time price tests it, even if they made money the last eight times? Human nature tells us all it cannot last, and so too often, traders try to be the one that "knows" this will be the time price breaks through that golden line--nothing lasts forever, right? The second chart, above, is the pre-market zoomed-in look, giving you some perspective of where we were yesterday and where we are likely to find overhead resistance and some support below the market. Note that yesterday, we broke below a sliding parallel drawn off of multiple bottoms below the green Major Median Line and actually tested the second sliding parallel, drawn at the same width as the first sliding parallel. These sliding parallels act just like Warning Lines stacked below a Lower Median Line Parallel and they were "tested" when they were drawn, since they were drawn from prior lows from multiple days that were of an equal distance from the Major Median Line. I used these lines yesterday as profit targets, as price sprinted lower, to give me a 16+ S&P handle profit day. Now that you've seen what I showed all the seminar traders before the markets opened, let's see what I can find in the market today!

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Because price opened well below the Major Median Line--and opened well below the first sliding parallel--I needed to find a new place that carried that same frequency IF I wantet to look for a highh probability trade set up, because nothing I had seen so far has shown me anything that looks or smells like a change from a down trend to an up trend. But as I looked at prices during our pre-market trading meeting, it was clear that price was going to open quite some distance away from the "golden line," so I'd have to be creative. Just by looking at the charts from yesterday, you can see that the sliding parallels are carrying the same frequency as the original Major Median Line--They have the same slope and price has tested them many times and price turned at these tests, both from above and below. So if price wasn't going to give me the original Major Median Line to sell against, I was more than willing to attempt a short entry against the sliding parallel, if I could find a trade entry set up that offered solid risk reward ratios and had acceptable money management stops. Looking at the chart above, you can see I waited for price to approach the first sliding parallel and then once it had tested it, I put orders in to get short at the re-test. This means I was selling E*Mini S&Ps at 1183 1/4. And my stop was simply three ticks above the 1184 1/2 prior swing high, from yesterday, at 1185 1/4. So I my initial stop was two E*Mini S&P handles. My profit target? Well, my initial thought was that if price got moving, I might see a test of the Major Lower Median Line Parallel, all the way down at 1165 and change...but I decided that because of the holiday, I'd be best served to split my position into two parts and try to take some nice money out of the first portion and then see how the market unfolded before finalizing the profit target on the second half of the position. The profit target on the first half of the position was at 1175 1/2, which would be a test of the 2nd sliding parallel, which had already been tested yesterday. That would give me a nice profit of 7 3/4 handles on the first half of the position. That gave me a risk reward ratio of nearly 3.9, which is very good, so I entered the limit sell order at 1183 1/4 and initial stop loss order at 1185 1/4. And then once I was filled, I put a limit buy order in for half my position at 1175 1/2, and made it "OCO" with my stop loss order at 1185 1/4.

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You can see that price climbed quickly and after testing the sliding parallel, I was filled two bars later at my limit order, leaving me short S&Ps at 1183 1/4. And three bars later price plunged through the profit order on the first half of my position at 1175 1/2. Once I double checked my audit trail, I reduced the size of my stop loss order and watched for further clues about the directional energy left in the market. Note that on the bar that broke through the 2nd sliding parallel and filled my first profit order, price was right at an area of confluence, an Energy Point, and IF price was going to continue lower, it would need to perform now, with further extension to the downside.

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But instead of showing further downside directional tendencies, price congested and then began to head higher. And because this was a holiday and because price had now moved so far past the Major Median Line [and because I had more than ten S&P handles in potential profits on the table at one point], it was time to look at this chart with a more creative "tactical" eye. Starting with the premise that the area of confluence was acting as a magnet, or to be more descriptive, the place where a stretchy cord was tied to the ground, I measured how far price had come from the high of this move [which is the high of today] down to the Energy Point. And then I simply transferred that same distance below the Energy Point, giving me the length of the stretchy cord on both sides of the Energy Coil. As price tried to pull too far away from the area of confluence in either direction, the Energy Coil would act on price, causing the stretchy cord to snap price back towards the Energy Point. And to make the stretchy cord more useful, I simply transferred the slope of the blue Lower Median Line forming a portion of the confluence to a line that ran through both extremes of the stretchy cord, in effect giving me a new set of sliding parallels to work with. And these new sliding parallels should tell me where price should run out of downside and upside directional energy. Now note that price had come down about the same amount below the Energy Point as it had gone above it when it made the morning's high. Once I saw that, I entered an order to take profits on the second half of the position at the re-test of the lower pink sliding parallel, where the stretchy cord should stop price from moving lower [because it would be out of directional energy]. This meant I was now working a limit order to buy S&Ps at 1172 1/2 and I saw no need to change my stop loss at this point.

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Price was unable to hold above the blue Lower Median Line Parallel and turned back lower. Four bars later, it filled my limit order at 1172 1/2, for a nice 11 3/4 point S&P profit, which translates into $587.50 per contract before commissions. Now that my positions were closed, I was curious: 1) Would price now work its way lower in a thin market, finally testing the Major Lower Median Line Parallel; or 2) Would price turn back higher, stretching and breaking the cord from the Energy Point and making new highs for the day?

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Looking at the final chart, you can see that the stretchy cord held price firmly to the Energy Point and price closed right on the blue Lower Median Line Parallel--directly off the Energy Point. My profit targets may not have been the most conventional today, but then, my entry set up had a little twist to it, so perhaps that set the tone for the day. In any event, it's always good to be a close observer of the market as it unfolds before you. And if you are capable of playing, "What if...?" you often get some very nice results, even if the desciptions of what you were picturing sound a little goofy... Creativity can be a good thing, as long as you maintain your money management and risk reward ratios. I hope you found this example interesting. And as always, I wish you all good trading! Tim Morge