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January 28, 2005 Comments: Euro FX futures spent the second of half of Thursday in an Energy Coil, re-storing the energy expended in all the recent gapping formations. But with the 7:30 AM economic numbers, price shot out of the hole, quickly rocketing through the top of the coil and heading straight for a re-test of the Lower Median Line Parallel that price had drifted out of as time moved forward. This is a classic re-test sell area, and one I try to watch for, especially on spike moves.
Where you put your entry order is a matter of personal preference, but I always feel that with these re-tests, I want the market to get good and over extended, or I may find myself short and just watch while price bobs along just below the Lower Median Line Parallel, edging higher and higher until I get stopped out. So I always put my orders right at the Lower Median Line Parallel, not before the line--and I update the order at the end of each bar, so that the order is always "fresh" and at the level where price would intersect with the Lower Median Line Parallel. In this case, price nearly touched the Lower MLH twice, before finally tagging it and getting me short at 1.3086.
The intial stop on the trade was 1.3106 OR two consecutive bar closes above the Lower Median Line Parallel. If price hung around up here that long, I'd look to scratch the trade or minimize the damage as soon as the second close above the bar was happening.
How did it play out? Here's the second chart, with the updated price action: |
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Profit targets? Well, these are personal preferences, and you can always snug stops as you gain profits in the trades and watch how the trade unfolds to the downside. The first and most obvious area to take profit would be the bottom of the Energy Coil price tested on the opening bar [and a triple bottom to boot]. But looking at the chart, it seemed to me that price had tried twice to climb above two key resistance areas, the red First Warning Line several days ago and now the re-test of thge Lower Median Line Parallel, so I felt the downside might have a bit of a nice run in it. I liked the thought that price might blow through the bottom of the coil and try to test the larger time frame Lower Median Line Parallel. And that's an area that I'd use my "three tick rule," meaning at the start of each new bar, I measure the price of the intersection and then move the profit order to three ticks above the up sloping Median Line Parallel [so as each bar ends, the profit target climbs just a little higher].
One last note before I finish describing the action: If you're short as price re-enters an Energy Coil from above and IF price makes any significant headway towards or past the mid-point of the Energy Coil, immediately snug your stops up to three ticks above the top of the Energy Coil that price just busted down below. If price has the strength to climb right back out of that Energy Coil area, you no longer want to be short. At best, price will consolidate...OR it may have had its run to the downside and found "new legs."Protect yourself when these sign posts present themselves and you'll save yourself lots of hard fought for profits.
As price came down through the Energy Coil, the action was so fast, I was tempted to hold off putting in my profit order three ticks above the Lower Median Line Parallel. But remember: "Have a plan and trade your plan!" I entered my order at 1.3011 and I was filled easily as price ran through the bottom of the Energy Coil [You'll notice at times that price will accelerate when it breaks through what should be key support or resistance...]. Taking profits as price seemed so very weak is often difficult, but remember, you want to be taking profits as the last group are selling into the action--not scrambling for the door along with the crowd!
This was a nice classic trade set up that played out according to the plan and its well worth studying it carefully and wondering how you would have traded this set up.
I wish all of you a good trading day!
Act, don't Re-act! |
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