 |
| Click To Enlarge |
|
|
Market Commentary for September 27, 2005: Today I'd like to show just what the floor traders that have been to the seminars at the CME are looking at and what they are doing with the set ups they are starting the day with. Each morning, before the markets open, I post the dominant Median Lines [or pitchforks], along with the variables used to reproduce those exact pitchforks on Autoforks software, on the seminar forum for all the markets I watch. The traders can then either draw the dominant pitchforks in by hand [on eSignal, for example] or they can simply enter the variables we post with the charts on the forum and the software automatically draws the dominant pitchforks for them--and of course, they can double check their own screens against the chart images I posted.
On the chart above, you can see that I identified an area of potential confluence for them before the markets opened. Then they simply had to have the discipline and patience to wait for the trade set up to develop and put in the correct limit entry orders and initial stops. And if the market then let them in, they manage the trade using the money management techniques taught in the seminar.
In this specific example, the confluence came in at 1217 1/2, so traders woould be buying a test of this area. The initial stop on the trade would be three ticks below the swing low of 1216, at 1215 1/4. The profit target would be a test of the either the blue up sloping Median Line [if price rocketed to test it immediately] OR the red down sloping Upper Median Line Parallel. This meant that the original profit target was at roughly 1226 and since the initial risk on the trade was 2 1/4 E*Mini S&P handles, the risk reward ratio on the trade was about 3.8, which is well above the minimum accepable level I take [2:1].
Note that IF you got into this trade, because you were long and you'd soon be selling against a down sloping profit target, you'd have to keep adjusting your limit sell order AND your risk reward ratio would decrease as time passed, so the sooner the trade hit payday, the better off you'd be. Let's see how the trade unfolded: |
 |
| Click To Enlarge |
|
|
Now looking at the second chart, you can see that the hardest part of this trade was waiting...and waiting...and waiting... And especially for ex-floor traders, this is a difficult thing to teach, so I have been finding out that the younger guys that have taken the class [right out of college] that never traded on the floor have a real edge in the patience area. Once folks got long, it seemed to take forever until it finally broke out to the up side, but you can see that once it began to move higher, it hit payday very fast.
The only other difficulty with this trade was that it really wasn't possible to move your stop until about three bars from when the profit orders were hit, because price just kept coiling and coiling. To be honest, of all the traders that took the original trade, about two thirds exited the trade before price hit the Upper Median Line Parallel. But the ones that followed their trading plan hit a very nice trade today, getting out at roughly 1225 1/4, which gave them 7 3/4 E*Mini handles per contract [or about $387 before commissions per contract, with an initial risk of $112.50 per contract].
This is a good example of the type of trade entry and risk reward ratio I look for and teach in the seminars. I generally show examples of trades in Bonds, E*Mini S&Ps, E*Mini Russells, CME currencies and Dax futures.
I wish you all good trading!
Tim Morge |
|