October 18, 2005

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October 18, 2005 Morning Comments: Looking at the three 7:45am charts I used for the pre-opening market strategy session with the seminar traders, you can get a pretty good idea of what I was thinking once the 7:30am economic numbers knocked the futures lower: Price failed to test both the Upper Median Line Parallel AND the Median Line yesterday and if the markets gapped open lower and the gap remained unfilled, Hagopian's Rule would dictate a likely large downside directional move. And note that yesterday's highs merely made it back to a perfect test of the confluence formed by the two major down sloping Median Lines in the cash S&P market. As always, the key to making money in this type of market is to wait until price plays ITS cards and then to watch for a high probability trade set up to develop.

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Price gaps open lower and trades lower. The longer the gap remains open, the more I like the downside potential of this market. I note with interest an area of Opposing Lines of Force and I'll watch to see if price shows me a high probability set up if it indeed tests this area.

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Price climbs higher and it does test the area of Opposing Lines of Force right when Time dictates it should. And note that although it broke above the confluence and had a good amount of separation above the area of confluence, it closed below the confluence, setting up a nice failed zoom and re-test trade set up [or it could be viewed as a simple test and re-test of the area of Opposing Lines of Force]. I am looking to sell the re-test of the confluence in the E*Mini S&Ps at 1191 1/2, with an intial stop loss 3 ticks above the 1192 3/4 high of the day, at 1193 1/2. My downside target is a test of the green Major Median Line, which gave us so many gorgeous short entries over the past ten trading days, which would come at roughly 1181 1/2. To get this profit level, I am simply eyeing what appear to be average sized bars and then I overlap them by about 1/3 of their range, as I project them lower and to the right, simulating the passage of time and an average move lower-and that gives me a rough idea of where price would intersect with the green Major Median Line IF price unfolds at about an average rate.

So I am risking 2 E*Mini S&P points to make roughly 10 E*Mini S&P points, which gives me a risk reward ratio of 5:1, which is very nice. And I am hiding my initial stop loss order not only 3 ticks above the high of the day but also just above where price would fill the open gap, in case traders get a bit itchy to fill it...

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Price does re-test the area of confluence, getting me short at 1191 1/2 in the process. I check to make sure I am filled and also that my initial stop loss order is still in the market and then I enter my profit order at 1181 1/2.

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Price runs lower and then consolidates, eventually leaving a spike high at 1188 1/2 that turns into a swing high when price makes a new low for the day. As that bar closes, I move my initial stop order down to 3 ticks above this new swing high, at 1189 1/4.

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After confirming the swing high, price consolidates again, this time leaving triple tops at 1187 3/4. It's getting late in the day, so at 2pm CST, I enter a MOC [Market on Close] Stop Order, because this is a day trade, and I don't want it to turn into an overnight trade under any circunstances. And as I look at the charts, I notice that price has tested the pink down sloping Median Line twice and is now consolidating again. The day is getting late and as the third of the triple top bars close, [which is also the low bar close for the move], I move my profit stop down to 3 ticks above the triple tops, boxing in profits in case price has run out of downside directional energy--which is possible, since it has now tested the pink Median Line twice and failed to close below it. If price heads back up in a late afternoon rally out of the hole, I want to make certain I keep some of these profits...

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And finally, price heads back lower and right before 3pm CST, I cancel my limit buy order at 1181 1/2 and close out my position "at the market," which turns out to be at 1182. I then cancel all my stop orders and double check that I am working no further orders and that I sold and bought the same number of contracts. I don't want to give away any of this hard earned money! This trade netted 9 1/2 E*Mini S&P points, which is a nice $475 per contract before brokerage.

This was a nice directional trade, set up by watching the open gap and remembering the implications of Hagopian's Rule. And price seemed to gravitate right to the green Major Median Line [or should I say the "golden line," after the way it has treated me the past two weeks...]. Waiting for Price to play its hand and then looking for a high probability set up, and finally sticking with the early plan were the keys to these trades.

For those of that didn't hear, we had a nice multi-media test today for several hours. People came into the private "virtual room" and got to hear my raspy voice, ask questions, watch me draw...It was a very nice time. I'm going to do my best to have the same room up and running by 10am CST tomorrow [Wednesday] so people can come in and watch if they're interested, ask questions, see what the software is like and frankly, to get me more time practicing on this new software so we begin doing webinars on it and also mentoring and advanced seminars. I'll only be there for 30-45 minutes in the morning, because I am teaching a seminar, but if you come to the room [even earlier than 10 am], I'll have AutoForks up "live" 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'll try to be there around 10am CST and stay for as long as I can before the seminar I am teaching begins. If you beat me there, the room will 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. I mentioned our short S&P position several times this morning--though we are in no way giving trade signals--so some folks got to follow along if they were there for the early session. Everyone is welcome--the room holds up to 100 people.

I wish you all good trading!

Tim