Tuesday, February 08, 2005

Traders Helping Traders Big Weekend Edition - Part Two

This is Part Two of a two part publication that is broadcast each Sunday.

There are also two daily market updates each day of the week, one each from Erich
and Tom, to keep you abreast of what they see happening and what they're doing in the markets.
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Inside this Issue:
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*Trade Review
*New Trades
*Educational and Q&A
*Opening Comments

Talk about a roller coaster. Barely two weeks ago, we were reeling from the effects of record rains. This pat week and a half have been some of the most beautiful days I can remember in recent history featuring bright blue skies and temperatures hovering the high 70's to low 80's depending how far from the ocean the thermometer was located. Just gorgeous.

Trading the past week treated us fairly well despite jittery markets on a lot of fronts. The current economic winds are translating into choppy price flows making it even more imperative that we focus on our management even more than we do normally. The Bonds in particular have been tough sledding of late. This happens periodically and usually clears out over time. We must adjust our approaches as the market changes in character during these cycles.

Those who continue to believe, or at least act as though, analysis is the trading well from which all blessings flow are particularly at risk and vulnerable to these types of cycles. These cyclic machinations demand that you pay more attention to managing trades and less to talking oneself into believable imperatives because this formula or that indicator or this pattern says … whatever.

There is only one solid truth in trading … analysis leads to entering positions and management leads to profits. Therein lays the real difference which separates the winners form the losers. The far larger percentage of traders has it all backwards. The majority believe that deeper and deeper and more complicated analysis is the predominant activity of the successful trader.

In fact, it is only the initial step in a successful trade and is mouse-ian in comparison to the elephant of thoughtful, common sense management of your trades. Teaching analysis, whether fundamental or technical implies you will arrive at appoint where you will be smarter than the market or your trading adversaries.
This is intellectual fraud. This cannot be accomplished. It is the reason why you have tried everything known to mankind and you cannot find the system or methodology that defeats the market on a consistent basis. You have but one hope … thy name be management. Pretty good sermon. Heh? It isn't even Sunday yet.

Whatta' you say, gang … let's go finish off last week with the review and get set for a profitable week full of solid analysis in proper perspective and sparkling, inspired management of our trades.

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Trade Review
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MARCH 30 Yr TBonds
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The combination of another round of non farm payrolls falling below analysts expectations and Greenspan talking up the Dollar sent the Bonds steaming north. After the opening move we stayed higher all day. Obviously, being in a sell only mode kept us sidelined the entire day Friday as Bonds added better than a full point.

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MARCH Canadian Dollar
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I thought the open was just a brilliant demonstration of S&R at its best. I sold one at 8075. Although there is not much activity at 8000, those fat round numbers carry a ton of implied S&R without even 1 hit being in evidence. When we broke below I used the old thought process of being gone should any market rise back above a major, major number. ANY full=, round number like 8000 is major, major. I rolled to 8003 and was stopped out at 8006 for $690 with a fairly large smile on my face.

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APRIL Gold
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It was all there in a picture perfect $10 channel set up. I sold 418.60. On the blast to 415.50 and the subsequent failure, I rolled threw in a market order filled at 416 for $260. We retraced all the way to 418.10. I debated internally selling again. I took a shot even though we didn't technically have a chance of selling anything above the 80th percentile. Sold 417.80. I again exited at 416 for another $180. That gave me a $440 for the day.

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MARCH Cotton
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I bought one at 43.10 and was stopped out at B/E. I could have done it again but I had no intention of a weekend hold … duh. I just let the second rise go by the boards.

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MARCH Corn
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When was the last time you saw a HALF CENT daily range in Corn? Yeah, like never. I saw enough, I bailed at 1.94 ½ for a $25 loser .

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MARCH Wheat
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I entered the day long from 2.88 ½. When we climbed above 2.90 I didn't want to see a trade back below 2.90 for sure. I rolled to 2.90 ¾ to bank something from the grains. Big whoop … $112.

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New Trades
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MARCH 30 Yr TBonds
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Friday's big advance effectively takes Bonds off the table for me. Not something I'm very happy about as the Bonds are my bread and butter market of choice. Since my rules relegate me to only trading structure on the Daily chart and we have none. A peak at the weekly shows we are within about a point of some significant resistance about 117.00. 116.00, where we sit, also has some reason to consider it has "what's most likely" status.

I can't play these but, they do give us something to watch, something to get an idea about what may play out in the ensuing days while we wait for Daily structure to build. The monthly tells us 116 is the real deal and that Bonds sit atop a very, very significant and defining point. This is quite dangerous territory … for shorts or longs alike. In the past 10 years 4 of the 5 biggest long term down moves have either launched or accelerated off of or around this level.

It's the "around" I find a little scary. The monthly tells us we could see another point or even 2 up before a slide south. We tried twice to break out above 116-00 on Friday and each attempt met with failure of measurable proportions. Monday, I will sell a break below 115-16 with a -19 stop. I'll roll it to B/E on a -12 or -13 tick. Obviously, this is very aggressive management but we are in an environment that will abuse an unwatchful eye.

I'd rather make nothing or very little than take any inordinate risks. When the break comes, and it will, it'll be quick and of significant proportions. I can see us dumping 2-3 with this kind of circumstance. I will only do the 115-16 sell if the entry opportunity is preceded by a retest of 116-00 and a subsequent failure. Monday's Update ought to be an interesting one.

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MARCH Eurodollar
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Nothing changed this week that would alter what I said last week so I'll just stay with that. Here's what I wrote … With strength in the Bonds and a solid, with a capital "S", support line at 97.025-.020, it becomes hard to make a case for selling the ED. I'm going to relax a little on the press to sell this market and watch for some resolution. I will hang on to my play from 2 weeks ago, buying on a break above 97.055.

The following was written in the 1/16 edition … it's been a long time since we've done any buying here … for very obvious reasons. I'm going to break that pattern. I will buy a break above 97.055 with a stop at 97.040. The target is 97.095. I'll start squeezing pretty hard on ticks above 97.080. Keep an eye on appropriate RRR management along the way.

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MARCH Canadian Dollar
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We closed at 8008 on Friday following a low at 7996. Even without ant real 8000 structure we know that price level contains implied S&R strength and we'll respect it despite its structural short comings. I'm going to sell a break below 7996 with a close stop … 8009 sounds good to me. That'll risk about $140-150 tops. There's a little bit of stuff around 7970 we'll have to defeat to go anywhere significant.

Bring the stop to B/E as we go below 7990 and bring it tight … say, 7977 as we get below 7975. If we break 7970 you can leave the stop there until we get into the low 7960's then bring it to 7969 … we don't want to stick around if we get back to 70. Call the target 7920-7915 and get real tight with your stop again as we get below 7925. RRR sets up as about 5:1 worst case. Above us we have strong resistance at 8025, 8045-60 and 8080.

Any of those could stop an up move. I'll buy on a retest of 8000 that fails and then starts rising … make it go above 8008 first. The stop is 7997 for risk of $110-130. Call the target 8100, roll to B/E at 8015. Make it tight at 8025, 8045, 8060 8075 and when … and IF we get above 8080 start really squeezing as we work towards 8100. I'll just grab anything above 8093.

This trade would have about a 6.5:1 RRR. Don't get married to that number though … remember any of those resistance lines could end the run.

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April Gold
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Breaking the big time support at 423-4 and then abandoning the 420 Channel is a huge change in the Gold dynamic. Of course it's all tied to 2 things … the Dollar and supply/demand. The bigger issue being the Dollar at the moment. We don't pay attention to those things, we just plod along with our charts and $10 Channel strategy, right? So, that exactly what we'll do on Monday … play the $10 Gold Channel … selling near the top of the 420/420 channel and buying near the bottom according to the rules.

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MARCH Cotton
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Friday's close at 43.20 makes the focus for Monday on 43.00. We'll buy a retest there that fails and starts higher. I'd prefer to see something below 43.10 and then catch it going up at about that price. The stop is 42.93 for risk of about $85. The target is 44.50 for profit potential of $700 yielding RRR of 8.2:1. We'll bring the stop to B/E at 43.20. We'll need to roll again at 43.30, 43.50, 43.80, 44.00, 43.25 and near the target … say 43.40, we'll start the exit squeeze.

I don't see a sell of interest at this point. The underlying support at 42.50 and 42.00 are not worth the risk associated with getting there.

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MARCH Cocoa
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Deriving the numbers from the chart is, I think, pretty obvious. It's all the same numbers that have been in play at various times over the past month or so. I will buy a break above 1600 with a 1593 stop unless the fill is above 1607 in which case the stop goes in at 1597. We're trying to keep risk as near $100 as possible.

The target is 1660 giving us RRR of right at 7:1. Roll to B/E at 1611. Protect the trade at 1620, 1640. I will also buy a failed retest of 1520 with a stop at 1517 and a target at 1600. Roll to B/E at 1530. 1540, 1560 and 1580 are quite strong and mandate aggressive protective rolls. I'll sell a reciprocal of the above trade. A failed retest of 1600 that heads south is a sell with a stop at 1603. Roll to B/E at 1587. Use the numbers from above in reverse order for your management.

The strength of all those numbers is substantial and can end the run quickly. Further, it also could make this market extremely choppy in between these significant S&R numbers. Protect yourself at all times.

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MARCH Corn
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I'm going to continue with the same play from last week. I'll buy March Corn on breaks above 1.95 ½ or failed retests below there. Stops at 1.94 ¼ or 1/94 ¾ if the fill is 1.96 or higher. Aggressive scalp rolls and all done at 2.00 with squeezes continually tighter above 1.98. We continue with our September Call spread at 2.60/2.90.

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MARCH Wheat
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Same story here in Wheat, buying breaks above or failed tests of 2.88 ½ with stops at 2.87 ¼ or ¾ dependent on fills. We roll very tight expecting 2.95 to end it all. Start squeezing at 2.94 ¼. If by some miracle we get past 2.95, then we'll play the end to be 3.00 and start the exit squeeze at 2.98 ½ on up.

That's it for the Super Bowl Edition. Have a great trading week and I'll talk to you through the Daily Updates. Thanks for tuning in.

-Tom

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EDUCATION:
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What in the world is this "EXIT SQUEEZE" stuff? Let's talk about that some.

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