FIVE POINT CHANNEL

WAS     this a day your chart scale kept changing, or were you changing it?  Two point candles with wick tops and tail bottoms lapping and overlapping. If you look at a 15m chart, you see we were in a decline from the Euro session, and by mid morning we were back to those highs.  From there we were on a roller coaster going from high to low and back again.

Personally, today's trading was compounded by interruptions related to the end of the QTR, and the whipping action was more than willing to remove the protective stops place into profit positions.


To buy LOWS sell the HIGHS would seem common sense, and I'm sure  there are traders discussing that strategy  this evening wherever they gather.  But in real time, what is high and what is low is not as obvious.  Albeit, a 1321/22 long or a 1324/25 short did have merit.  It was the road in between that appeared as treacherous as a winding, ice laden mountain pass.

So, if you did not play the highs nor the lows, what options do you have on a sideways channel?

1. You could attempt a long/short at previous support and resistance, and select an appropriate stop loss.
2. Play the EMA, long a bullish cross short a bearish cross.
3. Play other recognized MA"S
4. Review you loss strategy;  does the market action warrant a larger protective stop?
5. Or, stay with you plan and accept that trades may be quicker to stop out, as opposed to your normal desire for 2, 3, or more point runs. 

Essentially, you are developing a plan to address steady runs versus one for overlapping thrust and pullbacks.


5m ES

The high and the low were established rather quickly, and we had a PA wave in a defined channel.


Some of the trades for today:

We began with some of those LOW longs.  The choice was to play with a normal stop, and move it into profit when PA hit X price.  Some will work better than others, but there is no second guessing your initial risk established by the stop positioning.  Both early cases were lows running back to, and potentially crossing the EMA.

The 89 and 200 ma was deemed an acceptable support for a long entry.  Again, moved stop into profit.  It would run or hit the stop.  With the wicks and tails, the initial assessment of risk was not changed.


Near the end of the day, we had a nice bearish channel in the 512 chart.

In the absence of "holding" through the thrust and pullbacks, an acceptable trade was the channel TL's with a standard stop loss.  This trading was more productive than the harsh wicks & tails seen earlier.

TREND AND FADE

Yesterday we saw the market open near the low and continue down.  The statement made in the room

"[09:50] <Chartmaster> most would be looking to sell  thus against the herd, mkt would like to take them to the cleaners  and run back to 04-05" set the tone for our trade day.

That sell down  had a clue:  a reversal near the low.  While shorts were still entering, we were looking long.  The day turned bullish.

Fast forward  to day two.  On the global setting, we see the open in a down trend which quickly reversed to the lower range of the pre-open high.  By bar 14, we had a double test of the low that began a very nice bullish day.

Our strategy continues to focus upon trends, breakouts, and reversals.  Some of the trades we discussed included:

Bullish trend lines at the open; retest of lows; our bracket breakout play; and a very nice 3 point extended reversal.

We went long when the bullish TL resumed,

and shorted the market fade at the end of the day.

The reads continue to be reliable, and seem useful in a variety of PA  settings.

TRENDS AND BRACKETS

Once again, the pre-open look was of overlapping candles on the 5m ES.  The 512-3m had a better feel, and was the chart of choice for the open and the trading day.


Price was hugging the clustered MA's and then began to weaken.  We chose to act on this PA rather than using a bracket.  The first trade of the day was a short of this weakness, followed by a long when buying was noted.

The long was a reversal entry.  The setup was approximately 50%  of  b4, and it was set above b6.  If  b6 continued down, then there is no entry.  The order entered on b7.  We discussed the logic in the chat:  when shorting draws in new traders, down PA seems obvious, the market will often correct in the opposite direction.  Although the trade was for +1, the actual outlook was for a move to 1304-05.

Price broke the MA's (CMA) and continued in a long bias.

TREND RULE:  When the entry is on a CMA,  the long/short will stay with the trend until 1.) profit target hits; or 2.) PA closes below the EMA.


BRACKET TRADE: DAY 2

Refer to yesterday's blog for the bracket rules.

Brackets were set at 11.25L  and 9.25S for an afternoon trade. If the PA is trending prior to the bracket, a with-trend order can be entered at the first BO, however there is the risk of failure, as with a consolidating BO.  An entry here can have a secondary order at the 50% area if the pullback develops.  In this case, there were interruptions and the trade was scratched.  A secondary entry was used to garner a quick point.

The bracket trading was followed by more long trend bias.  Again, long until the EMA is threatened.  In this case, the EMA of the 512 was used for the exit, to help preserve more of the profit built into the trade.

BRACKET THE BREAKOUT

The day started with overlapping bars with an upward bias. B4 had a 2 point range, with a 1.25 pullback from it's high.  This activity is avoided.  There are higher probability trades, and we chose to wait at the open.  Had this continued, walk away and trade another day.

Our first opportunity came at b16.  Weakness was noted at the recent high, and a PB was developing.

We had CC with the 512, and considered that the PA would test the 200 level.



BRACKET THE MOVE:

Mid day saw a consolidation taking place in the PA.  Certainly, as frustrating as the open for many traders.  We choose to avoid the whipping action of overlapping bars, the AM, and we avoid the consolidation.  But the consolidation offers a hidden nugget that is valuable for traders.  Consolidations breakout.

The play was announced around bar 51: bracket the consolidation with a short at 1310.5 and a long at 1313.25.   The bracket should keep us out of the consolidating waves, and get us in the breakout.

bracket rules:

1. set bracket above/below the PA of the consolidation.
2. note the 50% level of the bracket.  If buyers enter at the bracket, the initial BO tends to fail and will try to retrace to the 50% level.
3. You can accept an entry at this mid level if it fails, or continue to monitor the original bracket.
4. Consider the mid point failure as a clue to the PA direction.
5. Note all perceived S/R in and near the bracket.

This bracket was very profitable for those that followed  the PA break of the bracket.

CM TRADING

see our current blog at                  http://evestnews.blogspot.com/


join chat at                                 othernet Mirc    #chartmaster  

READING THE CHART

Tonights     blog will address Reading the Chart, the first part of becoming a trader.




Success in any endeavour requires a level of understanding, and, to a greater extent, a desire to put forth the effort to be successful.  This effort includes:

•  learning
•  developing tools
•  developing discipline
• practice until it is correct
• commit to it

Success will also bring you into contact with three types of people:

1. Those that legitimately want to learn.  They have the same discipline to succeed you possess.  They will succeed.
2.  Those that want the success, but not at the price that determines the success.  They will accept less, tend to fail or lose interest, and will move on to a lesser pursuit.
3. Those that want, will not put forth the effort, and will use resources against you, rather than for them. 

You will see all three.  Put your energy into number 1's, help number 2's with kind words, and let number 3's self destruct.  Keep your focus, keep your directive, keep succeeding.


READING THE CHARTS

TRADES have been removed for a purpose.  They are openly discussed in our chat room, and how many points or how much one does over another is not the focus. YOUR focus is what do the charts tell me and how CAN I find value in that information.

 This discussion uses the 5m chart.  Most, if not all, actual trades are generated with the 512t chart combined with a secondary chart.  But most traders are familiar with the 5m.

POINT 1:  Market opens with a duel between bulls and bears.  This shake out eats inexperienced traders lunch.  Line 1 is a rising bullish indicator, and aggressive traders will launch longs along this line.

POINT 2:  PA has cross a compressed ma area (CMA).  This is a long entry and your hold is to the first failure.  In this case, around point 3.

POINT 3:  Sellers entered, however it was more a profit taking selling.  You read this since the selling did not, some will argue could not due to buyers, continue with bar 15. (b15).

B15 then becomes your secondary entry if you missed P1 or P2.  Target will be previous high (14 area in this case) or a similar failure that took out P2 longs.

POINT 4:  Markets like to test highs and lows before completing the next move through those levels. 1314 had been establish last evening in after hours trading.  POINT 4 is your exit.  Your next effort will be a reversal from this point, or an additional leg breaking the 14 level.


Just as POINT 1 TL established a long bias, channels can establish a bias, and we can have mini channels within a major channel.


POINT 5:   Every trader seems to have some measure of  SUPPORT or RESISTANCE.  These levels can, and often will create 1) reversals, or 2)  trap and a continuation in the PA.  With a long bias and the expectation that 1314 would be tested again, POINT 5 become a long with a 5t protective loss.  If  the reversal #1 occurs, the 5t protection should be sufficient. NOTE   the S or R areas do not cause the PA to change.  PA changes/can change at these S & R's because they are psychological points, and react to trader's perceptions.

B49 can be your exit, full or partial for a +1 run to the EMA.

POINT 6:  Three stops at 1312.75.  SHORT.  You now have  two points ( # 5 and  #6) creating a channel.  POINT 6 also establishes (at the time) a lower high, suggested 1314 could be the high area for the session.


POINT 7:  Point 5 repeat.  Support, near channel bottom, LONG.


POINT 8:  b65, b69 and 70 having difficulty crossing 1312.  At upper channel, appears to be another lower high from point 6.  SHORT.

On POINT 8 the trigger was at 1312, with a conservative entry at 1310.75.  Both had a target exit at the 200ma, or at the lower channel line.


Little different approach tonight.  A focus on WHAT we were seeing, not on what we did.

But the "did" was very good indeed.  Have a great weekend.

WHEN THE MARKET FOLLOWS THE SCRIPT

We talked earlier in the week about the silver lining behind the consolidating market.  It would break out, and show extended, playable trends.  Wednesday was better, and today was the reward for being patient with the price action.

FOLLOWING THE SCRIPT:

The only thing better is a market that follows your script.  Last evening PA was down hugging the low 1290's.  The script called for the market to break to the long side with an exit at 1302.5-2.75, a  +12 run.  The market won an Oscar for it's performance.

This area became our focus for another exit when PA would test the area a second time.

MARKET OPEN

[09:20] <@Chartmaster> open bias is long. we reached last evenings target. bit flat since 8:30 est so no rush to jump back in.  the unexpected (depends on the trader): selling back to 96-96.5 which can trap early open longs

The market was very responsive to directions, and we played the selling back to the 96 area.  We use CC to help identify our entries.  Both chart showed PA failing at resistance.

 The day was long bias, but we looked for the selling trap, and allowed the market to complete the selling to support.  That support was the entry for the market run to test the 2.5-2.75 target.

Once we had the target (1302.5-2.75) confirmed, the market began a short term consolidation.  The trade focus was a bracket of the sideways action with break out points at 1301-1303.25.

Once these points are tested, strong PA stalling at the BO point will be the clue to take an opposite side trade.  I.E.  the support near 1301  was a long indicator.

The PM say a pair of scalps at the upper BO point.  Knowing it will break is valuable.  Knowing when would be extremely valuable.

The PA support just above a major MA  was a clue for the BO move.  BO point identified, support identified.  The last trade of the day  as it extended toward our end of day target of 1307.75.

PA got there, but waited until early in after hours trading.

BREAK OUT DAY

Yesterday we discussed the two days of narrow ranged, cosolidation that was in the market and how this would resolve itself with a break out.  That break out would offer excellent extended, trend trades.

We got our wish.


PRE-OPEN


A pullback to the EMA can offer a quick scalp.  A break of the EMA is positive, and you would look for a quality pullback to enter the developing trend.  The first trade was for 1/2 point.

The story behind the story.

[09:18] <Chartmaster> hit resist  out .5
[09:18] <Chartmaster> they will try again

albeit the trade was for 1/2 point, the market was telling us that this area of resistance would be tested again, and formed our long bias for the day.

THE OPEN

Bar 3 was closing and the comment was made:

[09:45] <Chartmaster> b4  5m reversal
[09:48] <Chartmaster> take 2 at 84  tgt ema
[09:57] <Chartmaster> +4 bal out

The call was made; out in the open.  This was a TR to the EMA and a valid trade to extract point(s) from the market.  We also had the strong BO point in play.  Break outs at key levels tend to be strong and very profitable.

Additional trades included the MAXT which turned into a quick double bottom test.  Tops and bottoms can be tested over time, or in a quick, few bars pattern.  "Batman" is our humorous name for a quick (few bars) top/bottom test that creates a sharp pointed run similar to the ears on the Batman mask.  This test (mini in size) was followed by a CMA play.

The CMA is a favorite trade.

We also like cross confirmation in the charts (CC).    When a setup develops, be prepared to act.  Sometimes that action is after other traders fail at the expense of the market.  The market is always right.

Using the CC,  we let the 5t PB work to our favor, then entered the CMA (above) for +3.

[11:56] <Chartmaster> 3m 512t 5m 8m  range   all at cma area
[12:00] <Chartmaster> hit 5t from 5m 89  512t l(ong) the 200ma
[12:00] <Chartmaster> take them out, then we enter..
[12:02]   XYZ    what do you mean by hit 5t.. hit 5 tick failure/scalp?

[12:04] <Chartmaster> traders entered b26-28 5m thinking long w rising pa  pros(mkt) will pb 5t to take those w small stops
[12:05] <Chartmaster> set +1 and be  automatic..
[12:05]  XYZ   I get it ... bears that scalp entry at 89 exit at 5tick (1 pt profit) and provide fuel for up move...

Remember the strong BO points mentioned earlier?

[13:19] <Chartmaster> remember those BO points bias is long

 After consolidations, look for the BO with extended moves.  We remembered for a +5 gain.

POST comments today from #chartmaster.  Othernet Mirc

NARROW RANGE PART 2

Go back and read yesterday's post, NARROW RANGE CHALLENGE.

Today was Narrow Range Part 2, and like many sequels, trading was a challenge and no doubt frustrated many traders.  The SILVER LINING:  market consolidation  bring break outs with very tradable extended trend runs.

The pre-market saw numerous extended wicks (top) and tails (bottom) creating whips that take out many stops.  The 5m was difficult to get a good read,  and shifted the room trading focus to the 3m and 512t.

 Combine this with a narrow range, we anticipated another tight, range trading day.  A day of quick entries, closely managed, with a preference for scalps until a trend extended beyond the tight range.


AM TRADES:

The first trade came on a CMA with CC.  Price was in and out of the MA Cluster, and spent much of the day in the cluster area on multiple charts.

The next two trades also used this clustering to extract a trade.  The first was CMA and the second was a MAXT.



PM TRADING:


The first trade was in a rising trend that was successfully challenging the MA's, and perhaps was the better trade of the day.

Later PM Trades were pullbacks to the clustered MA's. The objective was to find a stronger move that might be able to break that cluster similar to the previous trade.  It is clear now that the trend had shifted slightly to bearish, and shorting may have provided a better trade.  That said,  the entry on the move would be given a chance to work, but at the first sign of  failure, a quick exit would be taken.

NARROW RANGE CHALLENGE

THE GOOD NEWS  

After hours provided some excellent trades last week, and it continued last evening, when we

traded support at the EMA and a reversal trade with multiple contracts.



THE IGNORED NEWS


 Hard trends can be a challenge, offering  volatile candle action taking out tight stops.  But if your with the trend and can absorb a larger risk, a wider stop can be productive.

Then a day like today comes along.  News and world events are discounted, and the market trades hours in a narrow sideways channel.  Outside the initial open run, additional trading was challenging.

What often will happen, a  trader gets impatient and begins trading every little turn thinking it's the next great run.  The narrow range creates an extended hold as they try to eek out a profit. Frustrated, they drop out.

The narrow range simple means you need a non-trend approach to trading.  Your entries will be at the support/resistance of the channel, or other accepted s/r  you may have on your chart.  Additionally, you will expect a lower return per trade- one or two points versus multi-point trends.

If you have experienced  s/w channels, and have the patience and control to manage the trade, restricted channels can still offer positive trades.

NOT TRADING, IS A TRADE DECISION

There were some excellent after hours trades last evening, and again at the US open.  The afternoon has become a sideways channel waiting for one side to blink on expiration day.  The movement will be fueled by both sides exiting or rolling their positions.

As a trader, unless you are involved with options, why get involved in this anticipated  EOD volatility?  It has been a good week, why risk it? 

Not trading is a trade decision, and now is a good time to decide.

Enjoy your weekend.


EVENING:

Last evening was another excellent session for us.  A number of traders were present, and were able to capitalize on the movement, which eventually hit our target, albeit, not the close of the market.

We had a reversal on the 512 and a CC with the 5m chart as both produced a CMA setup.

AM TRADING

Our trading preference is for a global chart at the open.  The rth is fine after 10 AM EST.  This proved it's value again today when the global was flashing a XRB at the open.  This was a short on the retest  established by the "M" pattern, or our friendly term, the Batman setup.  When a test come quickly, it is a very good short opportunity.  We also had CC with the 512 breaking ma's down.

The next opportunity was the inside test.  We had CC with a CMA break on the 512.

The inside test is a market move below the initial test, and offers a shorting opportunity.  Test will run in a three pronged  PA:  Upper, inside, and the lower. When the cycle is completed, the focus will be to watch for a reversal.

Both the test and the inside test were productive today.

Same Trading, Different Direction

Trading yesterday was tricky for most.  Bars extended, then  retraced  removing many protective stops as candles overlapped in a strong bear trend day.  Knowing the direction is one part of trading.  Surviving quick, and at time violent, moves is another.

Move forward 24 hours.  trading is the same, we simple reversed the direction.  Again, surviving short term (few bars) swings was the key to success.

You could simple avoid these days, but traders will use different approaches to address strong, but volatile bar bear or bull  trend trading days.

• Increase your potential risk loss by using wider stops within the trend.  Your holding period will tend to increase as well to reach your +2 or +4 targets.
• Accept that break even may be higher, and hone your scalping techniques by accepting quicker exists.  If you normally try to exit at +2 or 3, use a +1 and BE setup.

One key thing to remember about trading strong but volatile bar days:  if you can normally read the charts and can identify a break to the upside or downside, those upside/downside moves will be quicker to retest the move before allowing the trend to continue.  This retest mode makes it more difficult to know if the up/down move is "the one" that runs, or if it will be tested two or three times before advancing.


OUTLOOK

[07:30] <@Chartmaster> THur outlook: longer term divergence let's see if we can push into 72.5-74.75. a failure of 58 would make 1253 attractive bias is the long side

We started the day with strong support of multiple MA's for the initial long trading followed by the retest  which was MAXT long.

Later in the day  a WATCH was release for 71 and 67. 

          [11:48] <Chartmaster> 71 & 67 watch..

 A WATCH is critical points for breakouts.  Support or resistance that does not fail at those points, becomes an attractive trade as well.  We took the 67 long into the upper watch range.

We also had CC with other charts for the setup.  The 5m was a MAXT long.

Additional scalp-type entries were made during the day.  All-in-all,  a productive day with volatile bar action.



What Works for You?

The tremors of the earthquake in Japan combined with disappointing news on housing starts and consumer price increases in food to push the SPX and COMP below YTD gains.  The DJIA remains positive for the year, but suffered a loss for the day.

The focus for today's blog is WHAT WORKS FOR YOU? 

News is important, and it is recommended that you add a reliable source to your favorite list, because news releases vary in their perceived importance to the market.   Once you have a feel for what news may or may not do, your next focus is upon what works, and what does not work.  I assure you, knowing what does not work is exceedingly important.  Knowing what trades not to take will keep you in the game to use those that do work.

To develop your trading style, you will want to practice a variety of setups. 

• Keep tabs on their effectiveness,  your ability to spot them, and your ability to properly enter and exit the trade. 
• Next, narrow down the list to those most effective.  This will direct your focus to those trades you are best at, and should prevent "stupid" setting in where you become the Lone Ranger.  The market will love you, but not your account.
• Focus on consistency in all markets.  You should have a minimum of one full year, and preferable two full years of developing your trades, and using those trade in all markets.  Generally, you will find smaller range days in the summer, historical "crisis" in October, a robust 4Q, and, as you have seen this week, a never dull option expiration week.
• Don't bother to think about money, except in the sense of managing your account risk.  You are not trying to get every tick in a run.  You are not trying to beat the top or the bottom of the market.  If you can trade 1 contract (C) for 1 point and develop consistency, you should naturally migrate to 2c or 3c when your confidence and professionalism has developed.  Your trade setups and experience will develop into 2 to 4 points trades, with the objective to get some of those 6-10 point runs.
• Patience, practice, and consistency.  They are intertwined and must be developed every day, and hopefully you will show a progressive growth in C's and points.

WED 3-16-11

When we post trades in the room or here in the blog,  it reminds me of a line in the Wizard of Oz.  "Pay no attention to the man behind the green curtain."  Don't focus on points, or number of trades from any source.

  FOCUS ON THE TRADE

The day began positive.  Looking like the bulls may try to reverse their lethargic presents.

The first two trades were longs as the bulls approach, then broke a key resistance level. 



And then, one of our favorite setups, the CMA hit. It was a combo with a XRB present, and we had CC.

A must take setup!

If you missed the b17 entry,  you could still use a multi-chart approach to find additional entry points in b18.


That CMA sealed the day.  Bears were in control.

MARCH 15 2011 5M LOOK

We favor trading using a combination of charts:  Range-8m-3m-512Tick-5m.  The purpose of a multi-chart look is to garner a cross confirmation (CC) on a setup.  Additionally, at various time of the day, each chart has personal benefits.

When trades are placed on the 5m chart, some of the trade details seem lost.  One or two 5m candles will not show the 3m-512t setup, thus the trader would miss the trade all together.  Even the bracket break out trades are not as clear.  However, in defense of the 5m, we did post today that 5m PA was staying at the 20 ema, and that we had the 200 ma and 89 ma support below us.  This read led to a +6 trade when price hit out top bracket long.

As a trader, you will use what is comfortable for you:  the charts,  the setup,  the risk-return allowance, etc.  However, there are setups which offer a higher probability of going in your favor, and those setups can be found with a multi-chart approach.


5M CHART (click to enlarge)

See the 3-15-11 A.M. post for more details, and join us at Othernet Mirc at  #chartmaster.

Tuesday 3-15-2011

The read that 126 and 128 open put options would help move the market lower was beneficial to those in the room yesterday and last evening.  Traders need to understand, if there were no issues in Japan, the market would find another story to push down the price action.

Tuesday was viewed as a bullish day.  The price levels were simply too attractive to bulls, and we had a steady bullish bias into mid-day.

Range bar look

Some of the early trades taken in the room involved some of our favorite setups.  Reversals (XRB) combined with stalls (MAXT).

Another setup is trading break outs after trend reversals (TR) or trend reversal test (TRT) occurs.

Another favorite is a bracket trade when a break out is anticipated.  The bracket was established above and below the consolidating PA.

In this case, the long was established at 1262.