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发表于 2008-4-19 10:35
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October 25, 2005 Morning Comments: First some unfinished business from yesterday's update: I was long Canadian Dollars, looking to add to the position on a pullback OR looking to exit this leg of the position IF price tested the Major Median Line at 8498. I was filled on my profit order at 8498 in the first hour or so of trading, for a nice profit of 94 ticks, which is $940 per contract, a nice piece of work while I slept soundly. Now on to today's new trade:
Ok, some of you are going to scratch your heads and wonder...Lean Hogs? What in the heck is he doing? Is he going to show us a Frozen Orange Juice futures trade next? I chart and trade roughly 25 commodities and cash currencies and I portfolio trade them on a regular basis, meaning I make trades in them when I see something interesting. In the Lean Hogs, I booked well over five handles on the down side just this past week, so when I saw a nice potential buy set up, I was more than willing to attempt the trade, if price allowed me to find a trade set up with good a risk reward ratio and acceptable money management. And by the way, there are more than stock index futures markets to trade--but don't tell anyone, because they aren't always as difficult to trade as the index futures, because the competition is not quite so fierce...Now let me tell you what I saw before the market opened:
When doing my pre-opening chart work, which I posted at our sister web site this morning at:
Market Maps with Timothy Morge at eSignalcentral.com
[Look under the third party developer and studies area]
I noticed three Energy Points [or lines of opposing force] in the Lean Hogs market that might come into play today. I marked all three on the charts I passed to the seminar traders, but frankly, until the market opened, it would be near impossible to tell which would come into play. I DID point out that the fall from nearly 66 cents in the hogs down to just below 60 cents came in a vertical pattern--a Chimney formation--and these formations are called Chimney formations because the way out is usually the reverse of the way in, so in this case, there is a chance we might see at least a part of a run higher that comes just as fast as the fall did. So in the back of my mind, after seeing the multiple bottoms formed around the 60 cent area, I was leaning towards a long position IF the risk reward AND money management fell into place. |
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Eyeing the pre-opening chart even a little closer, I zeroed in on the Energy Point at 60.50 and noticed that there were triple bottoms not too far below this Energy Point, and they came in at 60.30. Now, usually if I buy at an Energy Point and then hide my initial stop loss below a market formation, it will be a greater distance than I used here. But in this case, IF price came down and filled my order, getting me long at 60 50, and then tested the triple bottoms, price would already be right at or past the Lower Median Line Parallel, so I wasn't going to give this trade much room past the triple bottoms. In my mind, this trade would work, and work fast, or not work at all. So my initial stop is two ticks [hogs trade in 2 1/2 cent increments, so 2 ticks = .05] below the 60.30 triple bottoms, at 60.25. I did consider giving the trade more room to work on the downside, perhaps down to 60.05, which would also be below the last swing low, but that low a stop started to skew my risk reward ratio on the half of the position I'd want to exit early, if price came out of the hole at all today. So if I get filled and don't get immediately stopped out at 60.25, I want to take profits on half the position as it approaches the red down sloping Upper Median Line Parallel [which is also strung between two Energy Points, one at 61.40 and another at 61.30]. So my profit target on the first half of the position will be at 61.25. I'll be risking 0.25 handles to make 0.75 handles on the first half of the position, which is a 3:1 risk reward ratio.
Here's a quick lesson for those of you wondering how to figure out P&L or tick value on something like Lean Hogs or Cattle if you've never traded them. Even though they tell you the value of the smallest incremental value traded in these commodities, it's not always clear what that means, so here's how I learned to tell, and it's still the best way in my mind:
Each Lean Hog contract is worth 40,000 pounds of Lean Hogs, per the CME web site. To find out how much you are risking, simply take 40,000 and multiply it by your entry price, which is 60.50 in this case, and that gives you $24,200.00 for the value of your Lean Hogs at that price, per contract. Now take your stop loss order price, 60.25, and multiply it by 40,000 pounds again and you'll see that if you sell your 40,000 poounds of Lean Hogs at 60.25, you'll get back $24,100. If you subtract $24,100 from $24,200, you'll see that you'll have lost $100 a contract IF your 0.25 handle stop loss is hit. This means that each handle in Lean Hogs is worth $400 per contract. You can use this same method by finding the contract specs and doing the math--that's something you learn when you take the Series 3 CTA exam, for example...Now back to the potential trade: |
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| Price came down for the first two bars, testing and breaking through the Energy Point at 60.50, getting me long Lean Hogs at 60.50 in the process. Once I saw my price print, I checked for a CME server confirmation and then I placed a limit sell order to take profits on half of my position at 61.25. I also double checked that my inital stop loss was in the market and working. And now note that although price plunged through the Energy Point, it closed near the high of the twenty minute bar, well back above the Energy Point and the blue up sloping Lower Median Line Parallel. That's always a good sign when you are long... |
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| Price worked around without going too far for most of the day and then as the last hour or so of trading got near, short covering drove prices higher, in the process getting me out of half of my position at 61.25, for a profit of $300 per contract. When I saw my price print, I checked to be certain I had a CME server confirmation and then I reduced the size of my stop loss order and moved it up to break even. So I am now long 1/2 a unit of December Lean Hogs at 60.50 and I am working a break even order for tomorrow's opening. |
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What's my upside profit target? I could easily imagine price testing the confluence formed by the 38.2 percent retracement from the Major swing high down to the recent lows and the blue up sloping Median Line, which comes in tomorrow at roughly 62 cents. IF price makes a quick climb higher, I'll exit the second half of the position there. But if it makes a slower grind higher, I'll try to keep snugging my profit stops higher, because this chimney formation could move all the way up to test the 61.8 percent retracement, which comes in at 63.40, and still not violate the recent down trend. If I get any type of price formation to hide stops behind, I'll try to work this position higher until it's run out of steam or hits my profit target. Let's see what the morning brings...
I'll be back in the office downtown tomorrow and as soon as I get in, I'll open the multimedia room. You're all free to drop by and watch me draw up pre-opening charts. I generally get there between 6:30 and 6:45 am CST. If you're interested, you can enter the private room, watch, ask questions once the markets open, and see what the software is like. Early on, I won't be answering questions--instead you can watch me work on pre-opening charts. Once the markets open, after I take care of position entry orders, I'll either take questions or if I have anything urgent to attend to, you can watch AutoForks drawing on volume bars in the E*Mini S&P markets, so you can watch what we call "stealth Median Lines" call the tune in real-time. These are Median Lines of our own invention and we've found them to be deadly accurate tools...If you'd like to drop by, follow these instructions:
Go to: www.omNovia.com/sc/spiketrading/demo and then follow the instructions and run the initial setup [it is very easy], then log in with your first and last name. The password is: 1235.
As I said above, I may open the room once I get downtown. If you beat me there, the room may be open but you won't see me logged in. Once I get in, I'll leave my charting package running with live charts, so you can watch what I am watching. I may be away from my trading desk for periods of time, but while I am there, positions permitting, I'll draw live, answer questions, maybe even show you what I am looking at in a particular market. Everyone is welcome--the room holds up to 100 people. Tomorrow is a seminar day for me, so even if I do take questions, I won't be available for a very long time. But I'll give you what time I have...
I wish you all good trading!
Tim |
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