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October 12, 2005 Morning Comments: As I said yesterday, the green down sloping Major Median Line has been "calling the tune" all of last week and so far this week, nothing is different. As you'll see on the next chart, this Major Line again was the key to the entire day--if you had this line marked on your charts and sold against it, using 3/4's of a S&P handle above the prior swing high as your initial stop loss , this would be the ninth straight trade in a row, ranging with profits from a bit more than five S&P handles to more than 16 handles, all intraday! This has truly been a golden line...
Once again, the first chart above shows the zoomed in pre-market view that's posted pre-opening on the seminar forum, right before I give 15-20 minutes of live commentary to the traders that normally trade the index futures. My message today: Don't try to make trading more difficult than it is: There's a high probability line staring you in the face. Beat it and beat it until it beats you. IF price makes it back to test the green down sloping Major Median Line, let it test it and then unless it accelerates to the upside THROUGH this line and closes above it, sell the re-test and hang on for the ride. Your stop would then be just above the prior swing high OR just above the high of the just made test bar--and if you can afford to use both as stops, use the higher of the two stop prices as your intital stop. My bit of caution was that it would be very dangerous to anticipate any change in trend UNTIL price has clearly shown us it HAS turned. There will be plenty of opportunity to buy against formations, using high probability trade set ups once price has shown it has changed direction...but it's a down trend until it is no longer a down trend.
I know these sound like simple things, but they can be hard to keep in the front of your mind. How many traders are actually willing to sell against the same line the ninth time price tests it, even if they made money the last eight times? Human nature tells us all it cannot last, and so too often, traders try to be the one that "knows" this will be the time price breaks through that golden line--nothing lasts forever, right? |
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Today's trade was extremely profitable and as I said, it was based on the same green down sloping Major Median Line that I have been selling over and over again. Every once in a great while, there is a Median Line that acts like a price magnet, pulling price back to it, but yet, each time price approaches it, it turns on a dime. And when you find those Median Lines, just work them over with no mercy!
Note that I added an inside sliding parallel to the pre-opening chart today--in fact, I added one and then added another an equal distance below it. Price has been well contained by the first sliding parallel, but IF price breaks below the initial sliding parallel, think of the second sliding parallel as one of the outside parallels of a Median Line--and I'd expect price would run out of downside directional energy at or near the second sliding parallel.
Here's the trade in its simplest form: I waited for price to test the same green down sloping Major Median Line. Then once that fifteen minute bar closed, I measured where price would intersect with the Median Line and put in a limit order to sell E*Mini S&P futures, which in this case came in at 1194 1/2. The initial stop on the trade was three ticks above the 1196 1/2 prior swing high, made yesterday afternoon, at 1197 1/4. And if you think of price being contained in a relatively narrow down sloping Energy Coil bounded by the green down sloping Median Line and the first green sliding parallel below it for the past three days, I'd expect price to run to test the second sliding parallel IF it broke through the downside of this down sloping Energy Coil.
And looking at the charts, you can see that I had a confluence formed by the second green sliding parallel and the blue down sloping Median Line that came in right at 1178. This seemed like a very logical profit target to me, although at one point I contemplated simply letting price run and closing the trade MOC [Market On Close], in case the price fall accelerated as the afternoon progressed. But using price targets are much more to my liking, so I used the 1178 area as my profit target. I also have a prior gap at the 1178-1179 area, along with a Major Median Line on the daily charts that gives some support around the 1175 area, so all of this fit with taking profits at 1178.
The key to this trade? Sometimes the obvious and the simple is the best. Why make it more complicated? This trade netted a hefty 16 1/2 S&P points, which is $825 a contract before commissions. Simple can be a very good thing.
I have said here on this page too many times to count: When you find a line that works, beat on it until it beats you. So far, this green Median Line has been golden! I wish you all good trading!
Tim Morge |
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