FOLLOWING THE SIGNALS 1/31/14

Nice day to end the week and end the month.  Bears played earlier in the week and were hibernating today.  Bulls saw a reversal early off the first 50CB (and a 2 bar doji reversal) and pushed the market higher.

The 50CB's are color coded for an easier read, and a parallel line is added to the upper 50CB where selling resistance was noted.  Once this area stabilized ( at a 50CB, a lower bull TL) it was bull buy signal  for another push higher where it held at the upper 50CB Bull TL.

The 50CB has three parts:  the upper Bull Trend Line, the Bear lower TL and the 50CB itself.  A break is regarded as a short that reverses a prior trend.  A 50CB hold is considered a trend continuation long.  The TL's are used to gauge the strength of the run and consideration for holding the trade.

BULL CHANNEL WITH ANOTHER STORY 1/30/14

ES today was in a slow grinding bull channel for most of the day.  Once a support was seen on the bottom, a parallel line was added to the top forming the channel.  Fair enough, but there was another development seen:  the possible development of the "Dick Tracy" play.  The DT is where price sets a high and has a pull back, then  pushes higher but at a lower level from the prior high only to fail and sell off lower than where the "DT" began.

The second story, buyers and sellers ( professionals) will seek a return of +8 to +10 points on their money.  This sets targets for the market, and today helped define the DT targets.


[11:00] <CM> gm all  (nick deleted for privacy)  looking like a Dick Tracy  if so target 74-75


[13:46] <CM> those top sellers would like +8 to +10  if bull can run a little would be fueled by short covering  DT play moved to 80-82

[14:02] <CM> 86 more solid bo of the bull channel..

[15:58] <CM> leg 2 bear from ema
[16:08] <CM> got the DT play finally.. (link deleted)

[16:12] <CM> 92/93 -8/10  equal run to 87-82  sellers got their +8 +10

MARKET TAKES A PAUSE: NARROW RANGE DAY 1/29/14

We were ready for the sell off from the consolidation.  The market has sold from 1842.5 to the current 1770 area.  This does not mean you will not find long plays, it just means we have flipped the trading bias.

• The market will be long, short, or trading in a range.
• The trade bias will rotate:  going "long is easy and shorting difficult" will rotate to "shorting is easy and going long is difficult".

The difficulty can be mitigated by sticking with your rules or trading parameters which establishes your tolerance for risk, your entry/exit rules, and your trading time rules which includes when you can trade and what instruments you can trade.  For instance, if you have a "day" job, you may be restricted to trading stocks and/or options that are set up with a risk stop and a target return since you are likely unable to monitor your position.  If you have a time to monitor your trades, then futures may be an option to add.


RULE TODAY:  the 50CB with trend lines

A 50CB developed early and price was trading around the bullish trend line.  The trade in financial chat today was long on the test of the 50CB (bar 12) with targets at the EMA and the Trend Line.  It appeared we were in a narrow trading range day, get in, get out, and wait for the next set up or find another "place to fish" when the range is considered narrow. 

You do not need to watch the market 24/7 nor could you.  There will be another trade when you return...

FIND THE STORY IN THE CHART 1/28/14

The saying "can't see the Forrest through the trees" has application to reading charts.  Too often a trader has a focus on the candle(s) and not the bigger picture or how the candles are piecing together in a story.  If the trend is your friend, then finding the story in price action is arguably the next best thing to the trend.

Finding the story in simple terms is finding a reason to trade:  price at X support or resistance, crossing Y,  testing a high or a low, on a trend line, etc.  The story has a greater importance if it can be repeated in another chart.

The charts used today (and the first I will review) were the ES 5 minute, the 1024 tick, and the 2 point bar chart.

THE STORY:  BULL TREND in a market that had broke lower in strong selling


5 Minute Chart

When buyers or sellers are noted, it will be assumed that they will require a +8 to +10 return.  We see that in the US Open and into the early AM trading as the +8/+10 became a resistance level.  A bull channel was noted as well, setting the dominant trade bias.


The 1024 Tick Chart

A similar bullish trend line and trading inside a range determined prior to the market.  All part of the story and reasons to trade your bias or dominant trade.



The 2-Point Bar Chart:

Trading in a bullish wedge (could be an ascending triangle using a flatter top) with higher lows developing.  Buyers at the lower trend line and sellers at the top anticipating an initial failed break out, with a significant break closer to the end of the wedge as price trades in a narrowing range.  Think of this area as a pressure cooker ready to explode.

Trades are personal and generally not posted.  Look at the WHERE not the amounts.  Look at the forest, and the story.

SIGNIFICANT BREAK OUT PART 2 1/24/14

Break outs come in a variety of duration and extension.  In a normal trading range day we can see the smaller versions in the BO-5 to 10 range.  Moderate BO's that run 15 to 25 points, and major buying/selling run that exceeds BO-30/35.

The market began the week stalling in a narrow trading range.  With each day's inaction the market builds pressure to break away from the TR.  Add some news (a dose of fear or greed) and the BO trend can gain momentum.

For two days the BO ran bearish, the trend.  Pull back attempts are contra trend and have restrictions:  hit a target and we may have a reversal; miss the target or stall at a prior BO Level resistance and the prior trend continues.  Much like the micro range Control Bars,  BO Levels will be considered support/resistance where we watch for a failure or break.

The pre open for the US Market had a micro bull trend developing.  Target 1 was set at   18.5-19 with a secondary BO target 2 set at 26.5-27.  Price was challenging the 20 EMA and we were approaching a BO Level at 1817.

Price stalls and we drop back to the BO-1812 and three selling legs to the next level at BO-1807.  (levels are measured in 5 points)

On the 5m chart, price simple could not break the 20EMA and the down trend continued.

A RANGE READY FOR A SIGNIFICANT BREAK OUT 1/23/14

Range bound price action may not seem exciting, but the break out of a narrow range is exciting.  That break out occurred today, and we had a warning before the China and US data was released.

From last evening:

[18:26] <CM> range bound day waiting for the break out

[18:29] <CM> ES stays in a narrow range day 2 this action may not seem exciting, but a substantial break out is likely tomorrow: long look at 1842.25 short 37.25 stronger at 1835

[20:45] <CM> 42.25 selling..


30 minute ES

1842.25 to 1814.  A very nice run.....

RANGE DAY: PART 2 1/22/14

RANGE bound days are to be prizes. Why?  As price stays corked up the pressure builds for a significant break out run, and those are very profitable trend runners.

Today price stayed inside the target area.  Playable? Yes.  Exciting?  No, but we are waiting for the better payoff...

Y-LB  yesterday's Long BOT (break out target)
Y-SB  yesterday's Short BOT
LB and SB today's range.

Nice channel inside the range with a failed breakout which held at a 50CB.

RANGE DAY 1/21/14

ES price today was near perfect in it's range play and range runs.  After a long break out, price failed to reach the BO-5 and reversed for a sustained short between two 50CB's and the LB to SB range run.  The  Short BOT (SB) broke and price ran to the next target, the BO-5 where it found support and reversed similar to the long break out.

The final target of 1839 was reached at the end of the trading day.  A range bound trading day.

30 Minute chart:

The 5m Chart:

USE THE RULES AND LET THE MARKET WORK 1/17/14

Rules are developed to let trades work with the market.  Look for 50CB's , use the price break out points (S-BOT and L-BOT), and use the BOT range.  When more than one rule is in play, the trade has a higher level of confidence.

• Price will trade the range, break out of the range. 
•  Price will test a 50CB:  breaking will continue the trend, failing to break with create a reversal.
• When price consolidates (narrow trading range) moving averages will contract making it easier for price to break through the resistance (bull move) or support (bear move).

•  Range runs that fail will reverse and are expected to run the range.
• Price that breaks the break out target is expected to run for a +5 run.

• On a swing day or break out from consolidation, price will push through the break out +5 and run for BO-10 to BO-15.
• Price that stalls at the BO level, is expected to reverse to a prior level (BO10 back to BO5) and (BO5 back to the BOT).
• The reversal, like other price moves, will seek a CB50.

Put it all together, and trading risk can be managed long enough to give a trade a chance to succeed.

BULLS, BEARS, AND TRADING RANGES 1/16/14

Contra trades, or counter trend trades, have a difficult close cousin name narrow trading range.  NTR thrashes about eating bull and bear stops trying to decide where to go.  It is a "take a break" zone of consolidation waiting for the next money move.

PLAY, STAY, OR GO AWAY

NTRs are frustrating due to the short burst that can take out narrow stops, or the trade you exit only to see the move, correctly identified, take hold and move.  You can see it and run away, stay on the side waiting, or enter plays with caution.  To enter, you need rules to narrow your options and attempt to point you to the winning side.

TODAY

We have two relatively close 50CB bars, one bear and one bull and price floating inside our range between the break out longs and the break out shorts, both of which were within a tick or two of strong 50CB points from yesterday.

What we would look for:

• A long break out (green arrow) or short BO (red arrow)
• A break above the buy 50CB trend line, or below the bear sell TL
• Price testing the LB/SB, a range run between the two, a failed break out that reverses off one or the other.
• Price that test a 50CB, reverses at the 50CB, or breaks the 50CB.
• Build a case with a strong signal, with 2 or more signals being better.

What we had:

• LB FBO with price breaking the 50CB bull TL.  SHORT BIAS
• SB hold, range run expected  BULL BIAS
• Etc.

The two point bar chart shows the NTR  and a support TL.  Multiple charts will offer a look at price action and help your overall analysis, at least help identify the trend or a NTR  zone.

The early sell bias prevailed as price could not break the upper resistance.

BULLS CONTINUE, BUT A TRADING RANGE DEVELOPED 1/15/14

Bulls continued today setting an early 50CB and break out of the long buy signal at the LB (Long Break Out Target).  The optimal hold follows the 50CB TL and the 20EMA.

A narrow trading range developed, with targeted exits at B39 to 42 as lower highs developed and PA closed off the EMA and TL.

The strength of the run is measured by the gap in price to the EMA/TL.

The balance of the day was trading in a narrow range as price consolidates for the next move.

HOLIDAY OVER: LET THE NEW YEAR BEGIN 1/13/14 AND 1/14/14

Holidays over, the new year has begun.  Yesterday and today we saw significant  price action as the sides play with the market.  Pros are eating lunches left and right as price whips turn nasty, and once your out you see the train leave the station for great runs.

So, the question should be "how do we trade this" or even better, "how to trade in any arena?"  There is a mountain of books and information on trading, but some quick notes:

1.  Start with the trend.  If your going against it (contra trading) you can do OK with the right entries/exits and toss in luck and skill.  Why fight it?  The trend will provide better trades and the opportunity to stay with the trade.

2.  Find what works for you.  There is plenty of free advice from traders, from the simple to the detailed;  hang out in a financial chat room and ask questions.  Practice, Practice, and then Practice some more.

3.  Simulated trades are not REAL.  No pun there, but the emotional twins fear and greed are not  found in sim trading.  Great for practice, but apply caution when you go live.

4.  Find a system and work it with vigor looking for failures.  Keep a log of all trading and reads on the market.  Why did you enter at x?  What was your strategy for an exit?  Your strategy for a stop to prevent excessive loss or to protect winning trade profits?

5.  When the trade is not working, and time is a personal choice but 1-3 bars should be sufficient, or as soon as new data is available to suggest a change in your trade, GET OUT.  See 1/14 chart for this suggested rule.



1/13/14

PA was floating higher to resistance from prior trading days.  The resistance held, and price moved to check the bar 4 previous higher low and the 50CB  (50% of a control bar).  Price was still inside the 50CB trend lines and considered net neutral but favoring another bull attack.

What looked bullish rapidly changed when the bull attack formed a gap to the resistance, which is regarded as a bearish signal in a bull run and vice-verse in a bear run.  The conservative short was an entry when the bear TL broke.

The resistance is seen in this compressed shot of a two point bar chart.   The bull likely would not win, and shorts were in vogue with downside targets in play.

The optimal hold for the entry is to follow the hap in price to some unit of measure.  In this case, the gap away from the bear TL and the gap to the 20EMA.  Bulls simple could not achieve an EMA pullback.

1/14/14

Price was in a bullish mode but saw opening sellers as PA hit the upper resistance denoted by the two -red resistance lines.  It force price down to the support and the 1816-17 area was seen as a buy opportunity.

Price pushed higher and developed a new 50CB for the day.  It was in this 1820 area that price stalled briefly, and at resistance, that a quick decision to short seemed valid.(see rule 5 above).

But that decision was brief.  Price was holding at the 50CB;  bears could not sell the market.

When the sell failed, it became clear that the 50CB and the bull TL were winning the battle.  The play?  GO LONG.  Additional 50CB's developed, but like yesterday's selling. the optimal hold is to follow the trend as long as the bears could not sell to the 20EMA or the 50CB trend line.  This gap is a valuable tool in staying with the trade.