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| March 30, 2005 Comments: After the gorgeous pair of Energy Coil trades yesterday, I wondered what the market would offer us today...And doing my pre-market work, as I eyed the 60 minute chart above, I'll tell you now, I really started to get excited. Sometimes, you can just feel the energy brimming over in a chart and for me, the 60 minute chart just looked like this market was about to make a major move after yesterday's beautiful Energy Coil trading. Note that the comment I made in pink, which is another very astute comment I picked up from Rich Dennis many years ago when we both spoke at a private trading seminar: When you see the longer-term charts start to leave unfilled gaps in the direction of the trend, remember that AT LEAST half the move is yet to unfold. As I marked up the charts before the opening, I was really pretty certain what I'd see when I switched to a lower time frame. But let's take a look together: |
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The market opened as I was finishing up my marked up fifteen minute chart. You can see that it re-tested the bottom of the Energy Coil, which I added in for these charts in pink, on the open and then began to climb higher. But after looking at the longer-term charts, I wasn't interested in trying a long position today. I had a very strong feeling that if price couldn't break above the string of overhead resistance it faced yesterday, it was going to find a great deal of down side energy today. And as I finished drawing in the lines, the last thing I marked was the Energy Point, which came in right at 1183. What's an Energy Point? It's more than simply confluence. There are so many lines of force converging on one single area, it is literally a price magnet. Price is drawn to these points, and generally, a change in direction then occurs at these points [But ALWAYS work stops or stop and reverses for those rare times when price accelerates instead of stopping once an Energy Point is tested]. As I added that Energy Point, I knew deep inside we'd see that price and I was very certain [probably too certain for my own good] that the Energy Point would be the kick off to a major down move for the day.
This specific Energy Point has not only the lines shown converging at that area, but for those of you that want to see the other forces "at work," go back and review the past three sets of trades I've posted here, using this same down sloping green Median Line set, and you'll see layer after layer of force at work just around 1183. It's obvious to all of you now that I want price to make it up to 1183 so I can get short, so let me lay out the trade set up on the next chart for you: |
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Looking at this next chart, you can see I've outlined a plan for getting short at the Energy Point, if price gives us the opportunity. My limit sell order to get short is at 1183. My stop loss is three ticks above the swing high from several days ago [which came in at 1184.25] at 1185. And my profit target is a test of the longer term Lower Median Line Parallel. Looking at the first chart, this comes in at roughly 1168.00, which is where I'll work my initial profit order. Note that there is also a long term Fib Projection at the 1171 area, but remember that we tested the 1172 area, so I expect that if 1172 gives way, there will be resting stops below there that will help accelerate price lower. I call my broker and enter my limit sell order at 1183 and my initial stop loss order at 1185.
I am risking two S&P points to make a potential 15 S&P points. The risk ratio is too high [meaning too good]to even bother to calculate. This will either be a "falling off the log" trade that comes along every once in a great while when you are in tune with a market or I will get stopped out for a two point stop and go back to the drawing board. Now that we have a plan, let's see what price does next: |
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| Three bars later, price hits the Energy Point almost perfectly on cue! We're short at 1183 and price closes a bit below our entry price, in the lower half of its range. As I see our price print, I call my broker and make certain I am filled on my short entry. Then I double check that he is working my initial stop loss order at 1185. Now let's see what price has in store for us: |
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| Price moves lower but then leaves a double bottom when the next bar closes. As I watch the third bar close, I note that all three bars have been narrowing in range and I decide to snug my stop up just a bit, in case price makes a run to new highs. I decide to move my initial stop loss down to three ticks above the high of the day [which was 183.25], so my new stop loss order is now at 1184. Let's see if price takes us out with a quick one point loss or continues lower: |
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| The next four bars are lower and all of about equal range. This is looking better, but even though I feel better about the trade, I move my stop closer, now down to break even. We have four points in this trade now and there is no sense in letting it turn into a loser. Where is price headed now? |
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| Price accelerates to the down side, blowing through the blue up sloping Lower Median Line Parallel and closing well below it. Things are looking great. I snug the stop again, this time to three ticks above the double tops left at 1181, so our stop loss order is now a stop profit order at 1181.75. Where to now? |
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| Now we're in the danger zone...Price spikes lower, running through the bottom of the Energy Coil, but manages to close just above it. And the next bar spends most of its time above the bottom of the Energy Coil and closes above it, though it does close unchanged and in the lower third of its range. We have quite a bit of profit in this trade and the last thing we want to happen is watch it evaporate if price is going to stay within the Energy Coil--Remember what I said yesterday about getting chopped to pieces by not paying attention to Energy Coils? I snug my stop closer again, this time to three ticks above where price would intersect with the recently zoomed blue up sloping Lower Median Line Parallel. The intersection comes in at 1176.50, so our new profit stop is at 1177.25. At this point, I feel that we'll either get stopped out for a nice profit in the next two bars OR price will again accelerate to the downside. I doubt we'll consolidate down here for long. Let's see what happens: |
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| Price moves back below the bottom of the Energy Coil during the next bar and then makes a new low in a wide range lower bar, closing near its lows. I like what I see, but again, I snug my stop, this time to three ticks above the mini swing high just above the bottom of the Energy Coil. If it turns into a long consolidation here, I don't mind getting profit stopped out. The mini swing high is at 1176, so our new profit stop is at 1176.75. |
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| We make a new low and touch the green down sloping Lower Median Line Parallel before turning higher for the next two bars. Price then turns lower again and although the last bar makes a new low for the move and again briefly trades below the green down sloping Lower Median Line Parallel, it closes in the upper third of its range and above the green Lower MLH. I snug our stop again, this time to three ticks above the mini swing high just made [at 1173.50], which gives us a profit stop now of 1174.25. We're getting tantalizingly close to our profit target and it's tempting with every up tick to take the money and run, but I'll stick with the original plan and see if price can make it down to test the longer term support before we get profit stopped out: |
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Price makes a new low, driving right through the longer term support of the Lower Median Line Parallel and getting us out at our profit target of 1168. Note that I *could* have lowered the target a bit, because it is a down sloping line, but that would have been fighting over a half point. I'd rather let the market just run through my order just above the potential support. Once I see my price print, I call my broker and make certain I am filled on my profit order. I then double check that he has me flat on the day now and that all of my orders have been cancelled. I make him repeat: "You're flat and working nothing." It's a good mantra to repeat at the end of each day.
This was a fun trade for me, because I don't usually get so escited when marking up charts as I drink coffee in the pre-market hours. And of course, its always fun when you set out a nice plan and it unfolds just as you saw it in your mind's eye. I hope you all find this example interesting and informative. If you would like to see the prior three trade examples, all which hinge on the same frequencies, they can be found at:
I wish you all good trading!
Act, don't Re-act! |
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