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October 28, 2005 Morning Comments: This weekend I'd like to point out the importance of context when looking at pre-opening market charts and looking for potential trade set ups. You can make good money trading and not be particularly good at reading context, but to regularly catch the large moves that occur during a few days a week, you will find that context plays a key role. And the better you are at reading the context of the market about to open, the more consistently you'll find yourself catching the big moves when they do happen.
Looking at the two pre-opening charts, above, you can see that I highlighted three Energy Points, one at 1183 1/4, one at 1183 3/4 and another at 1193 3/4. I pointed out that in the larger scheme of things, the red Median Line Set has been "in control," although price has played a little "loose" around it, especially at and above the red Median Line. And then I pointed out that price was likely going to gap open higher anywhere from 3 to 5 S&P points higher. Yesterday, price broke below and closed below the red up sloping Lower Median Line Parallel, so an open above the red Lower Median Line Parallel should be considered a zoom bar higher. IF the first bar opens above the red Lower Median Line Parallel AND closes above it with "good separation [1 to 1 1/2 S&P points is good in my book], I'll consider it a quality zoom bar higher. Both the gap open higher and the zoom bar higher would be signs of strength--especially if price was then able to stay above the red up sloping Median Line Parallel and IF it was unable to fill the potentially open gap at 1182 1/2.
On the longer-term pre-opening chart, I mused that price had made four higher highs, all above the red up sloping Median Line. IF price gapped open higher, back above the red up sloping Lower Median Line Parallel, would it also now make a fourth higher low?
The one thing I didn't mark clearly on the two pre-opening charts that I DID point out was that we had two Energy Points below where the market was likely to open, and the proximity of these two Energy Points made me think price would be drawn to them like iron to a magnet. And note that the lower of the two was formed by the Major green Upper Median Line Parallel [the Median Line Set I've been calling "golden," since it game me 11 of 12 nice sized profitable trades in the past two weeks] and its intersection with the red Lower Median Line Parallel--so, this Energy Point is really the meeting of the "old and the new" or to put it another way, the meeting of the Major Median Line set that WAS in control and the Major Median Line set that now IS in control. And remember Dr. Andrews fifth tenet that price will reverse off prior Median Lines or their Parallels, so watch this Energy Point especially closely as price unfolds.
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Price did gap open higher and the first bar accelerated to the upside, giving me a very nice Zoom Bar higher to work with, at least in the setting of the context for the day. Price made one more bar higher and then traders began to wonder about the open gap below the market. Suddenly you could feel them pushing it lower, as the attraction of those two Energy Points below the market [at 1183 3/4 and 1183 1/4] began to exert their force on the market. It was at this point that I saw the trade set up I'd like to trade:
IF price traded to the lower Energy Point, where the two Major Opposing Median Line sets intersected, I'd be a buyer. I entered a limit order to get long at 1183 1/4. My initial stop loss would be one full point below yesterday's 1180 3/4 low, at 1179 3/4 [because I like to stay away from "even" numbers when possible]. My profit target for the first half of the position would be at the overhead 1193 3/4 Energy Point, so I'd be risking 3 1/2 S&P points to make a potential 10 1/2 S&P points, which gives me a risk reward ratio of 3 on the first half. The one caveat on this trade set up is that 3 1/2 points is about as large a stop as I use in the S&Ps, because I *never* take a trade with a risk reward ratio less than two and it's difficult to consistently make seven S&P handles a day...so I was only willing to stretch this far on this trade because it is an Energy Point formed by two Major Median Line sets that have been in total control of this market.
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Price made one more new low and then climbed out of the hole, heading straight for the Energy Point at 1193 3/4, and although price got to the level before "time," I still took the profit on 1/2 the position as planned--though the early arrival of price at the Energy Point probably boded well for further upward momentum. As soon as my profit target was hit on half the position, I moved my initial stop loss order to break even and of course, changed the size to reflect the 1/2 I had already taken off at a nice profit.
You'll see the off-hannded remark I placed on the chart, one I hear two of my trading partners use when price is just hitting the lines perfectly: "It's gonna go red to red!" they'd say...
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Price backed off a bit lower from the 1193 3/4 Energy Point and formed an Energy Coil, re-storing its expended directional energy, before taking off to the up side again. Once price made a new high, I moved my break even stop to three ticks below this 1190 1/2 swing low, at 1189 3/4. Price then sprinted higher, heading right for the red Median Line ["Red to Red!" as Andy and the Mayor would say...]. At 2 pm CST, I entered a MOC stop order, because I didn't want this trade to turn into an overnight trade if both my stop profit and profit orders weren't filled by the close. And as 3 pm CST rolled around, I finally took profits on the remaining 1/2 position at 1200 1/2 and then cancelled my remaining orders.
I booked 10 1/2 S&P points [$525 per contract] on 1/2 the position and 17 1/4 S&P points [$862.50 per contract] on the remaining half. It was a great way to end a very fun trading week.
I am about ready to open up seminars to people via the internet. IF you are interested in the full length seminars that I have been teaching to both the CME floor traders and CBOT floor traders, please email me and let me know. I'll then decide how often to give them and what times to give them based on the people that respond and what time zones they live in.
We are in the process of building a sister site in concert with eSignal, and we'll be making announcements, posting charts and articles and webinar replays there. It may take us a week or two to finish building the area there, but you can find the area at:
Market Maps with Timothy Morge at eSignalcentral.com
[Look under the third party developer and studies area]
I'll be back in the office downtown Monday and as soon as I get in, I'll open the multimedia room. You're all free to drop by and watch me draw up pre-opening charts. I generally get there between 6:30 and 6:45 am CST. If you're interested, you can enter the private room, watch, ask questions once the markets open, and see what the software is like. Early on, I won't be answering questions--instead you can watch me work on pre-opening charts. Once the markets open, after I take care of position entry orders, I'll either take questions or if I have anything urgent to attend to, you can watch AutoForks drawing on volume bars in the E*Mini S&P markets, so you can watch what we call "stealth Median Lines" call the tune in real-time. These are Median Lines of our own invention and we've found them to be deadly accurate tools...If you'd like to drop by, follow these instructions:
Go to: www.omNovia.com/sc/spiketrading/demo and then follow the instructions and run the initial setup [it is very easy], then log in with your first and last name. The password is: 1235.
As I said above, I may open the room once I get downtown. If you beat me there, the room may be open but you won't see me logged in. Once I get in, I'll leave my charting package running with live charts, so you can watch what I am watching. I may be away from my trading desk for periods of time, but while I am there, positions permitting, I'll draw live, answer questions, maybe even show you what I am looking at in a particular market. Everyone is welcome--the room holds up to 100 people. I found the problem with my stealth settings--I had "frozen" the lines [told them to stop drawing new lines automatically] before I left for a meeting and forgotten to "unfreeze" them...so they'll be more interesting to watch again Monday.
I wish you all good trading!