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October 24, 2005 Morning Comments: Although I trade many commodities and currencies, I tend to show only a handful, because that's what most people that read these pages tend to focus their trading capital on. But today, I wanted to give you just a glimpse what else is out there and just how profitable other trading markets can be, relative to pounding your head against the same market, along with 90 percent of the other futures traders in the world, in the stock futures markets. The chart above is the pre-opening 60 minute Globex Canadian Dollar chart [6E Z5 or 6E #F]. I have been trading in and out of a nice long position in the Canadian Dollar, and much like I trade Copper futures when I have a directional idea, I tend to scale in and out of a position, trying to stay ahead of the rest of the market as they stop themselves into the market and then get stopped out once the move nears a "regional" end. I call this "trading a rolling chop," and what it means is that I pick a side to trade from and then carefully pick my places to enter the market, trying to buy as most other traders are getting stopped out of their long positions [if I am trading from the long side, as I am today] and then to sell my position [or at least a good portion of my position] as people are then getting stopped back into new positions as the market overextends itself.
Several weeks ago, I grew quite a sizable position beginning at 8490 [roughly 150 canada by the time I had finished adding on the way up] and then sold half my position at the Major up sloping Median Line [at 8617] and then ran a stop loss right below the Upper Median Line Parallel, which came in right at 8590, where I was eventually profit stopped out. The market has now made it all the way back to a test of 8400, and as I did my chart work over the weekend, I immediately thought that it was just about time to begin accumulating a long Canadian position. When I saw the nice confluence formed at the 8400 area, I decided I would try to buy an initial unit at or near the confluence. It's important to note that there were triple bottoms at 8423 and last week, I was long just above that level, with a stop just below the triple bottoms and a profit target at 8512, which easily got filled before this recent sell off began. So my thoughts this weekend were that when the market broke below the triple bottoms at 8423, all the stops in this market were probably run and any longs that had ben around were most likely stopped out. When I saw where the Canada futures were likely to open this morning, I knew just what I wanted to do. Let's look at my orders overlayed on a chart:
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I want to get long one unit of Canada futures IF price comes back down to test the area of confluence at 8404. My intitial stop will be twenty ticks below my entry point, at 8384 and my initial profit target, if price shoots out of the hole quickly, will be at 8498. So I am risking 20 ticks to make 94 ticks, which is a solid risk reward ratio in anyone's book.
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Price came down and tested the area of confluence, getting me long at 8404 before turning higher. Once I got CME confirmation I was filled on my limit buy order, I double checked that my initial stop loss order was in the market and then I entered my profit order at 8498. Before anyone asks, I do trade Canada using the electronic markets, though at times, I use the floor for some of my fills if I feel I need to. But generally, I trade it electronically.
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Price continued to climb higher for the rest of the day, settling the day around 8437, for a potential profit of 33 cents, at $10 a cent, which equals $330 per contract. That's a pretty nice tally for a small movement in the Canadian Dollar, and although I still have this position on and will likely add to the position if I like the way price unfolds, if I see a nice sized profit within a short period of time, I often grab it as it approaches overhead resistance [or support levels if I am short].
Don't forget that there are some very nice markets out there that most of the futures traders are neglecting. I recently closed out a short position in the Lean Hogs that took more than five cents out of the market, using this same technique. And I caught a nice short in the 30 year bonds early this morning that netted a nice 25 ticks. So once you learn to master a few of these simple entry techniques, they are easily transferable to other markets and I urge you to do a little investigating on your own. There are many nice markets to trade, where the noise is not so bad and the competition is not quite so fierce...
For those of that didn't hear, I opened the room up as soon as I walked into the Spike Trading room this morning--between 6:30 and 7am CST. And quite a few people got to watch me mark up all my charts--everything from Canada to EuroFX to the Stock Index Futures and even the Lean Hogs... I don't know if I'll be in the room tomorrow morning, but you are free to pop over and see if I am on-line. Anyone that is interested can enter the private room, watch, ask questions, 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. If you stop by and the room is not open, you'll know I got side tracked or had a meeting and was unable to conduct a session. But I'll do my best to open the room several times a week and show how I mark up charts and answer questions when I have the time.
I wish you all good trading!