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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! |
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