Wednesday, February 16, 2005

Traders Helping Traders Big Weekend Edition - Part Two

Part Two - Tom's Trades - by Tom Loge' 2-13-05
Notable Trading Tactics for Stocks and Commodities
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Opening Comments
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A pretty typical week for us … some unexpected performance and some disappointments as well. Not in the context of losses but more in that I saw some nice set-ups that didn't pan out as well as I'd expected.

It points up the issue of execution. Execution is a critical part of any success in trading. The best laid plans and strategies can be rendered useless if execution does not provide integrity to the triggers. This is another way a relationship with a knowledgeable and involved broker can be a huge benefit to you. Even if you are trading a significant number of your trades on an electronic platform, the broker behind it can provide you a lot of insight and guidance on improving your execution.

Playing things as tight as I do makes it even more critical. My trades are sometimes hinged to very narrow bands of price movement. A few points worse on the entry, a few points worse on the exit can distort my RRR to the point of being unfavorable. I think it is important to understand that, even though a trade may be going your direction, if the likely entry fill isn't within your established parameters it may be smart to pass on the trade. Remember, there will always be another trade; there may NOT always be another chance to recoup a loss.

On exits, whether shooting at a target or rolling a stop designed to squeeze you out of a trade make allowances for execution vagaries. Don't roll right at the trigger point; consider doing it a bit early. The tighter the trade your involved in, the more protective you need to be. By "tighter", I'm referring to those trades where a short distance exists between entry and target exit.

Let's go close out last week and get ready for the challenges coming in the new one.
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Trade Review
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MARCH 30 Yr TBonds
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We opened with a bit of a gap lower to 115-22 and immediately started to climb. We hit -29; I sold one at -27. We went to 115-17, which turned out to be the day's low, and I rolled my stop to -19 … that took about half a second to get hit … out with 8 ticks, $250.
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MARCH Canadian Dollar
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The open took us back to 8045 but not low enough to repeat the buy at 8010. It did fail at 8080/90 but too late in the day to do anything with it.
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APRIL Gold
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We bounced back up into the 420-430 channel. I waited for the confirmation which was pretty clearly there, I thought, and then bought 1 at 421.00. Once we got above 423.00, remembering our old friend 424.00, I rolled the stop to 422.90 on the theory I did not want to be long if we broke back below 423.00. I was stopped out at 422.80 for $180.
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MARCH Cotton
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I sold one at 44.95 and was stopped out at B/E.
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MARCH Cocoa
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I originally tried to sell the break back below 1560 but couldn't get it done. I bought 1561 on the return trip. It would have been so easy if they just pushed it to 1580 but it failed early at 1573. I tossed in a market and got out at 1566 making $50. I bought another one on the next break above 1560 at 1562. I got the stop to B/E but they filled me at 1560 for a loss of 2 ticks. I was done for the day.
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MARCH Corn
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I viewed the open at 1.99 as a test of 2.00 and sold 1.98 ¾ with a stop at 2.00 ¾. Consistent with my scalper stance I rolled the stop to 1.97 ¼ when we broke 1.97 and got stopped right there for a penny and a half, $75.
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MARCH Wheat
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I tried to play a break back above 2.95 buying 2.95 ½ with a stop at 2.94 ¼. I rolled it B/E on the move above 2.96. They nailed us at B/E.
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New Trades
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MARCH 30 Yr TBonds
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What goes up must come down pretty much sums up last week. We still have another point to go to come full circle. Whether we will or not remains to be seen. I think we'll see 117 again before we see 113 or 112. Friday's close at 115-26 has us looking at 116-00. I will sell the failed retest there. I will also buy a break above 116-00. From 116-16 up I will still refrain from buys.

The possibility is also there for a move from -26 directly down to 115-16. I will sell the break below or buy the failed test there.
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MARCH Eurodollar
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Nothing changed this week that would alter what I said 2 weeks ago so I'll just stay with that. Here's what I wrote … With 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. ======================
MARCH Canadian Dollar
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We settled Friday at 8081 a strong S&R level. My preferred trade would be an advance on 8100 that fails to break it and then turns south for a sell. This poses a bit of a dilemma since that would put the 8080 support back in play. But the problem does not abate if we break there because 8060 is sitting there waiting to be dealt with as well.

My take on the best way to play this is to take the sell off 8100 taking advantage of the strength there to use a very small stop 8103 or 07 at most for risk of hopefully less than $100 and ideally closer to $50. A break of 8090 is cause for a roll to B/E. A trade below 83 is met with a roll of the stop to 8089 and a break of 80 brings it to 83. Under 8065 we bring it to 69 and a break of 60 brings it to 63.

This is really very tight management but with good reason. It may produce very little but hopefully nothing worse than a B/E trade. With Friday's low at 8041, the 8040 line has consequence as well. Use a like set of rolls if we make it there. The target is 8000. The RRR at that target with the risks from above makes sense but with so much S&R between entry and the target we could see the RRR diminished significantly.

Management therefore must be tight and watched like hawk that hasn't seen a mouse in a month. I will also buy a break above 8100 with a stop at 8093 or 97 if the fill is above 8107. 8117 is the B/E roll. Something up around 8205-10 is the target. We have S&R to deal with at 8120-25; 8145-50, 8160 and 8180-90. Management here too is extremely important lay out a plan of roll triggers and follow it with fervor.
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APRIL Gold
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We're back to where we were week before last with the return to the 420-430 channel. The return to this level also brings 424.00 back into play as well as seen in our Friday trade. Of course the $10 channel is our primary focus. I'll buy a break above 424.00 but not sell the retest. Sells can only happen up above the 80th percentile or drop back into the 410-420 channel and pick up the 80th percentile there.
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MARCH Cotton
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Friday's close at 4495 leaves a break above 45.00 as the first look. I'll also sell a break south from this level. Stop on the sell is 45.11 and 44.91 for the buy. Both these stops should yield risk under a $100 and closer to $75. 44.00 is the target on the sell but it could dive deeper if we fail up here. That would effectively be perceived as a "… ok, let's start over" scenario.

The buy target is 48.00 for openers. From 46.25 up thru .50 and pushing .75 will be a tough stretch to negotiate. Keep a sharp eye on your RRR and make it make sense all the time. I would recommend a look at the weekly chart to gain some perspective on the big picture.
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MARCH Cocoa
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Most of the following comments are a repeat of last week' TT. There are some changes so don't just assume it is verbatim. 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 1680 giving us RRR of right at 8:1. Roll to B/E at 1611. Protect the trade at 1620, 1640 and 1660. 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. I will also play both sides of 1560, buying a break above and selling a failed retest. The stop on the buy is 1557 and 1563 on the sell. Get the sell to B/E as we go thru 1552 and the buy as we get above 1608.
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MARCH Corn
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There is no reason to change our approach in Corn. I'm going to continue with the same plays from last week and the week before. 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 also want to sell failed tests of 2.00 with stops at 2.00 ¾ or 2.01 ¼ at most.

Be tight about 1.97 ½ and be done at 1.95 anything on the slightest hint of a bounce. We continue with our September Call spread at 2.60/2.90. As of Friday it was valued at 2 ½ cents down about a penny from when we first looked at it. We'll continue to hold it.
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MARCH Wheat
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Our 2.88 - 2.95 game has worked decently for us. I'll stay with that program with a minor change on the topside. 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 2.97 3/4 on up.

That'll put a cap on this edition. I'm looking forward to Wednesday's Webinar. If you can make it … that would be just stellar.

As Mississippi Fred McDowell finishes up the last guitar licks on "You got to Move" I'll fade out as well.

-Tom

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Asher's Stats
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Asher's trading-price Ranges, Breakouts, and Pivot Point calculations for Corn, Canadian Dollar, Silver, and Soybeans for tomorrow. Fresh calculations for these and other commodities are sent out daily to subscribers, FREE. http://www.tradershelpingtraders.com/asherstatssignup.html and posted to the site weekly: http://www.TradingThingys.com

Ashers site is one of the few that specializes in Pivots: http://www.supportandresistance.com/Asher/pivots.html