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Wednesday
Jun032009

October 25, 2005

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October 25, 2005 Morning Comments: First some unfinished business from yesterday's update: I was long Canadian Dollars, looking to add to the position on a pullback OR looking to exit this leg of the position IF price tested the Major Median Line at 8498. I was filled on my profit order at 8498 in the first hour or so of trading, for a nice profit of 94 ticks, which is $940 per contract, a nice piece of work while I slept soundly. Now on to today's new trade:

Ok, some of you are going to scratch your heads and wonder...Lean Hogs? What in the heck is he doing? Is he going to show us a Frozen Orange Juice futures trade next? I chart and trade roughly 25 commodities and cash currencies and I portfolio trade them on a regular basis, meaning I make trades in them when I see something interesting. In the Lean Hogs, I booked well over five handles on the down side just this past week, so when I saw a nice potential buy set up, I was more than willing to attempt the trade, if price allowed me to find a trade set up with good a risk reward ratio and acceptable money management. And by the way, there are more than stock index futures markets to trade--but don't tell anyone, because they aren't always as difficult to trade as the index futures, because the competition is not quite so fierce...Now let me tell you what I saw before the market opened:

When doing my pre-opening chart work, which I posted at our sister web site this morning at:

Market Maps with Timothy Morge at eSignalcentral.com

[Look under the third party developer and studies area]

I noticed three Energy Points [or lines of opposing force] in the Lean Hogs market that might come into play today. I marked all three on the charts I passed to the seminar traders, but frankly, until the market opened, it would be near impossible to tell which would come into play. I DID point out that the fall from nearly 66 cents in the hogs down to just below 60 cents came in a vertical pattern--a Chimney formation--and these formations are called Chimney formations because the way out is usually the reverse of the way in, so in this case, there is a chance we might see at least a part of a run higher that comes just as fast as the fall did. So in the back of my mind, after seeing the multiple bottoms formed around the 60 cent area, I was leaning towards a long position IF the risk reward AND money management fell into place

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Eyeing the pre-opening chart even a little closer, I zeroed in on the Energy Point at 60.50 and noticed that there were triple bottoms not too far below this Energy Point, and they came in at 60.30. Now, usually if I buy at an Energy Point and then hide my initial stop loss below a market formation, it will be a greater distance than I used here. But in this case, IF price came down and filled my order, getting me long at 60 50, and then tested the triple bottoms, price would already be right at or past the Lower Median Line Parallel, so I wasn't going to give this trade much room past the triple bottoms. In my mind, this trade would work, and work fast, or not work at all. So my initial stop is two ticks [hogs trade in 2 1/2 cent increments, so 2 ticks = .05] below the 60.30 triple bottoms, at 60.25. I did consider giving the trade more room to work on the downside, perhaps down to 60.05, which would also be below the last swing low, but that low a stop started to skew my risk reward ratio on the half of the position I'd want to exit early, if price came out of the hole at all today. So if I get filled and don't get immediately stopped out at 60.25, I want to take profits on half the position as it approaches the red down sloping Upper Median Line Parallel [which is also strung between two Energy Points, one at 61.40 and another at 61.30]. So my profit target on the first half of the position will be at 61.25. I'll be risking 0.25 handles to make 0.75 handles on the first half of the position, which is a 3:1 risk reward ratio.

Here's a quick lesson for those of you wondering how to figure out P&L or tick value on something like Lean Hogs or Cattle if you've never traded them. Even though they tell you the value of the smallest incremental value traded in these commodities, it's not always clear what that means, so here's how I learned to tell, and it's still the best way in my mind:

Each Lean Hog contract is worth 40,000 pounds of Lean Hogs, per the CME web site. To find out how much you are risking, simply take 40,000 and multiply it by your entry price, which is 60.50 in this case, and that gives you $24,200.00 for the value of your Lean Hogs at that price, per contract. Now take your stop loss order price, 60.25, and multiply it by 40,000 pounds again and you'll see that if you sell your 40,000 poounds of Lean Hogs at 60.25, you'll get back $24,100. If you subtract $24,100 from $24,200, you'll see that you'll have lost $100 a contract IF your 0.25 handle stop loss is hit. This means that each handle in Lean Hogs is worth $400 per contract. You can use this same method by finding the contract specs and doing the math--that's something you learn when you take the Series 3 CTA exam, for example...Now back to the potential trade:

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Price came down for the first two bars, testing and breaking through the Energy Point at 60.50, getting me long Lean Hogs at 60.50 in the process. Once I saw my price print, I checked for a CME server confirmation and then I placed a limit sell order to take profits on half of my position at 61.25. I also double checked that my inital stop loss was in the market and working. And now note that although price plunged through the Energy Point, it closed near the high of the twenty minute bar, well back above the Energy Point and the blue up sloping Lower Median Line Parallel. That's always a good sign when you are long...

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Price worked around without going too far for most of the day and then as the last hour or so of trading got near, short covering drove prices higher, in the process getting me out of half of my position at 61.25, for a profit of $300 per contract. When I saw my price print, I checked to be certain I had a CME server confirmation and then I reduced the size of my stop loss order and moved it up to break even. So I am now long 1/2 a unit of December Lean Hogs at 60.50 and I am working a break even order for tomorrow's opening.

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What's my upside profit target? I could easily imagine price testing the confluence formed by the 38.2 percent retracement from the Major swing high down to the recent lows and the blue up sloping Median Line, which comes in tomorrow at roughly 62 cents. IF price makes a quick climb higher, I'll exit the second half of the position there. But if it makes a slower grind higher, I'll try to keep snugging my profit stops higher, because this chimney formation could move all the way up to test the 61.8 percent retracement, which comes in at 63.40, and still not violate the recent down trend. If I get any type of price formation to hide stops behind, I'll try to work this position higher until it's run out of steam or hits my profit target. Let's see what the morning brings...

I'll be back in the office downtown tomorrow 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. Tomorrow is a seminar day for me, so even if I do take questions, I won't be available for a very long time. But I'll give you what time I have...

I wish you all good trading!

Tim

Wednesday
Jun032009

October 24, 2005

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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!

Tim