Thursday, March 17, 2005

Tom's Trades - Part Two of the THT Big Weekend Edition.

This week you get the whole thing, to make up for the missing posts.

Thanks to all who have jumped on board for the Workshop April 9-10!

Erich, Shaggy and I are very excited to be bringing this to you and it WILL be an extraordinary event. I can promise you it will NOT be your father's Oldsmobile kind of a weekend.

Just an aside, Erich, Linda, Jacki and I are going to have a little "get together" at our home Friday night. What I hope will be a nice warm up for Saturday and Sunday. We're going to go deep in the cellar for a few bottles of my favorite wines. This will NOT be a "Ripple" and "Boones Farm" night.

If you happen to enjoy fine wine … and I do … keep your eye peeled for an opportunity to latch on to a bottle of 2001 Miura Pesoni Vineyards Pinot Noir. It is one of the most enjoyable wines I've ever had … a really BIG wine. I'm scouring all my sources to make sure we have a bottle or two for Friday night.

If you haven't signed up yet, go do it before it's too late! http://supportandresistance.com/seminar-signup.html

A pretty productive week for us. You'll notice that we'll be absent from some markets for awhile going a week or two without a trade, then we'll reel off 3 or 4 and that will go away again for awhile. This is quite normal and. I might even say, a usual trait of the way I trade.

Regardless of the length of time you've been a subscriber, through the archive you have the ability to go back to the beginning and follow my/our trades over the past year and a half. I think it is a most valuable exercise to go back through the back editions of the Weekend Ezines and Daily updates.

I'm not suggesting you read every one of them … more, pick a month time frame here and there. This can/will accomplish a couple of things for you. First you will get a good idea of this ebb and flow I referred to earlier.

Second you will, hopefully, come to appreciate the relaxed nature of trading with short stops and periodic RRR's. It will document it is not necessary or desirable to constantly feel you have a gun to your head when trading. True, THERE is money at stake.

I still contend if your thinking about the money and the prospect of a loss you are not in the optimum "zone" to be trading. The profits and the losses are only how we keep score at the end of the day. The less of a role they play in what you do, the more the activity of trading just flows … the better off you will be.

Let's close out trades from the past week and move on to the next 5 days of our game. Whatta' ya' say? Everybody up off the bench, huddle up, hands in the middle … let's break on 3 with "roll stops" … here we go, 1-2-3 "ROLL STOPS"!!
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TRADE REVIEW
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Just a reminder … check those FND's and LTD's every Monday … here's a good place to bookmark to do that … http://www.thectr.com/2005/vision/index.php

Most March Currencies and March Eurodollar have FND/LTD on Monday. March Canadian Dollar is Tuesday. Note that we will roll to June in the CD staring Monday. We've already rolled to the June ED.
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JUNE 30 Yr TBonds
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I felt a little nervousness creeping into the market as we dumped over 3 full points this week. I expected us to have a choppy day with legs up and down throughout the session Friday. I decided I was going to be real disciplined with my exits at -00 and 16 and not worry about runs that would carry past the cornerstone numbers of our regime.

It worked pretty dang well. I opened by selling 110-29 I took it to B/E as we broke -25. The very next thing I did was place a limit to buy 1 at 110-17. BAM! Out at -17 for 12 ticks, $375. Next, we bought 1 at 110-20 and were stopped out at -27 for another 7 ticks.

We next sold at 110-28 and we were stopped at -23 for 5 ticks. I tried to get my orders changed around and buy 2 at 21/22 but it didn't work … getting slow with the reactions in my old age. I had to take my medicine with the stop at 23 and missed the buy that rose back to 110-29.

I had a shot at picking up another 5-6 ticks as I most likely would have been stopped out at -27. I sold one at -28, brought the stop to B/E as we passed -25 and then immediately again placed a limit for -17. It never got there, came back and nailed me at -21 … to where I had ultimately rolled my stop … took another 7 ticks.

Total for the day: 24 ticks, $750. After that the volume started drying up so I closed up shop in the bonds and went to play elsewhere.
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JUNE Eurodollar
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We sold 1 at 96.535 on Friday. My stop is 96.555. Get out a good book to pass the time while we wait for this one to "age". MARCH Mini Russell We bought 627.50. In somewhat the same thinking employed in the bonds, I rolled to B/E as we went above 629 and immediately placed a limit sell at 631.60 so that if we made it to the 631.70 target level we'd be assured an out.

They took us out at 631.60 for $410. We sold 631.50 looking for a return to where? Yup, you got it, 627.20. Where do you suppose it went? Right again! Well, almost right … you and I both said 627.20 … it went to 627.00 before we got a bounce back to almost 629. I put in a limit to buy at 627.30 and got it for another $420.

Next go round we sold 627.00 and got stopped out at B/E. We bought 627.50 again and got stopped out at 626.50 giving back $100. The stop was a little too close. Bought it again, at 627.30 this time. We were stopped out at 628.70 on this one picking up another $140. I called it a day after that.
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MARCH $5 Dow
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We started by selling 10845 with a stop at 10857 for $60 risk … almost makes you laugh doesn't it? They almost came back and got us, rising back to touch 10854. I finally got the trade to B/E and, sure enough, they got us. I then bought 55 and got stopped out at 50 losing $25.

I sold 45 again, got it to B/E at 30. I figured this leg would end at 10800 so I threw in a limit at 10805. It took a while but finally … out at 10805 with $200. That was it for me. By quitting early I probably escaped a small loser and another maybe $150-200 winner on a sell of the 10800 break.
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APRIL Gold
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The confirm was there. I bought 1 at 441.80. We set off on a dead run for higher ground. We sort of petered out at about 445.50. I rolled the stop up to 444.90 protecting against a move back below 445. They got us at 444.80 for $300. We dropped all the way back to 443. Unfortunately this wasn't enough to let us back in as it climbed from there to 448.00.
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MAY Cotton
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I tried to watch the open but was too wrapped up with the Bonds and Russell. It retreated to 52.15. Was that a retest of 52.00? Sufficiently so to buy it? I'm not sure. While I was trying to make up my mind it took off. In retrospect it for sure was a retest. Was it tradable as such? Possibly. I have no quarrel with anyone who made the buy there. If I'd been less preoccupied, I'd like to think I'd have jumped it too. If you did, you made out well.
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MAY Cotton
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WOW!! Just your everyday 75 point gap open. Obviously we did nothing.
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MAY Corn
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You'll remember from last week's TT we were looking at a 2.25 target for the buy off of a 2.18 break. This is the trade we got into on Thursday and carried over to Friday. Friday's session opened at 2.20 and never looked back. We worked our way higher all day long with very minimal pullbacks along the way.

As we were approaching end of day and I was flying around on the Bonds and Russell I put in 2 orders … a limit sell at 2.24 ¾ and an MOC to be done OCO … one cancels other. We got filled on the limit … we are out at 2.24 ¾ for 6 ¾ cents, $337.
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NEW TRADES … NEW TRADES …NEW TRADES …NEW TRADES
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JUNE TBonds
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The Friday close at 110-20 makes 110-16 and 111-00 the "most likely" launch points. The recent weakness in Bonds certainly makes a lower opening possible for Monday we may be below 110-16 by the open in which case we'll be looking then at 110-00 or a post open move back to 110-16.

Bonds will try very hard to hold 110-00. The 110/111 level is about the 50% level on the weekly chart. Pretty close to it on the monthly as well. I would expect Bonds to spend most of the week in the 111/110 range unless we break it early in the week. If that comes to pass we could ripe for another 2 points to come out of pricing. If we get into long trades we want to be very conservative and very tight with our management. Buys are the higher risk trade right now.
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MARCH Eurodollar
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We're short from 96.535 as of Friday. If you did not get on board Friday you may wish to watch for an opportunity to get in on any retest above .535 but under .550. I doubt very much that we'll see a .550 available to us but .540 would not surprise me. I think the stop needs to be 96.555.

We're getting a little thin structure-wise down here. There are some quite old hits in here but certainly nothing of recent vintage. Makes it hard to get a comfortable handle on what's most likely. I think I'll bring the stop to break even on a break of 96.500 or possibly even roll it to 96.515.

If we break .500 I think I'd rather be flat for a bit than hold a short on a rebound of that magnitude. I'm loosely considering 96.400 as my target but that is subject to revision at any time should we actually build some new structure.
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JUNE Canadian Dollar
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Friday's weak showing leads me to believe we will probably see a gap down open on Monday.

Again, WE ARE TRADING JUNE AS OF MONDAY.

I would certainly sell a retest in the area of 8320 to 8340. I don't think we'll be that lucky, though. If so, the stop is 8323 if we get it sold under 20. If the fill is 20-30 we'll use 33, if 30-40 the stop is 43. Breakeven rolls come on the heals of 10, 20 or 30 breaking … whichever occurs first after your fill.

I'll also sell 8280 or 8260 with stops very tight … 8283 and 8263 respectively. If you're filled at the higher price these 2 are obviously roll point along with 8300. My target on this trade is 8180. Start squeezing as we break 8200. Keep a tight rein on RRR along the way. 8240, 20, 8200 are also good places to adjust the RRR with a roll of the stop.

I will not consider a buy before I see 8180 or an alteration in the current chart structure.
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Continued … JUNE Mini Russell 2000
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Technically the June contract became the front month on Thursday last week. It is always Thursday the week before the week of last trading day. I probably will not trade tomorrow in this market. I generally get a bit overly cautious when rolling monthly contracts. Especially here in a new market for us.

The only exception is I will buy a break above 640 with a stop at 639.65. After we have accumulated some profit we will allow more risk. The target on this trade is 647.
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JUNE $5 Mini Dow
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Same story in the Dow as the Russell. We move to the June contract and we approach with great caution. The trades I'm willing to do here are also very limited. I will only play 10800 tomorrow. I will buy a retest and failure to break below 10800 and I will sell a clean break below that level. The stop on the buy is 10783; on the sell it's 10817.

These same numbers in reverse are the B/E rolls points … 10783 for the sell; 10817 for the buy. The target on the buy is 10900 and 10640 on the sell. In the gap between entry and target keep the risk under about $200 and pay close attention to RRR.
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APRIL Gold
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Same ol', same ol' … the $10 channel prevails and guides all that we do for the moment. I'd love to see a big confirmation at 449 or above and then a chance to sell from inside the 20th percentile. Expect more volatility this week, so make doubly sure all the prerequisites are there before you jump.
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MAY Cotton
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I'm an observer tomorrow.
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MAY Cocoa
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A big breakaway gap on Friday. Cocoa is off my radar for the time being. I'll continue to watch it and report my observations in the daily update.
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MAY Corn
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The level of 2.25/2.26 is huge … said the master of the obvious. The last time we were here, hitting 2.25 on the final day of February, we failed and dropped 13 cents in less than a week.

I think this is pretty straight forward … draw the line with some width to it … the penny between .25 and .26 … buy a break above 2.26 with a stop at 2.24 ¾ for risk of a penny and a half, $75, assuming a fill at 2.26 ¼. Roll it to break even at 2.27 ¼. The initial target is 2.40.

There is no structure between here and there so we are left to our own devices … that would be judicious use of periodic RRR. I will also sell a retest and subsequent failure at 2.25. The stop is 2.26 ¼ for about the same $75 risk as the buy. We'll roll it to B/E at 2.24.

The target here is 2.12. There is a bunch of S&R in between … 2.23 ½ and then every 2 cents from 2.22 on down. It's a challenge and we answer it with the use of periodic RRR.
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MARCH Wheat
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25 cents in 2 sessions is pretty impressive. Sure plays havoc with the ability to read the chart the chart, though. I'm really in a watch mode for a tomorrow, not anxious to do a thing. I will do one trade though … I will sell a retest of 3.60 that shows failure with a stop at 3.60 ¼. I definitely do not want to be short if 3.60 is broken. We are in an uptrend and this is most seriously a countertrend trade.

Roll it to B/E as 3.58 is broken. The target is 3.30. There's tons of old S&R from last August, September and October to work with. It is a periodic RRR function to be sure. Keep it under close supervision.

That's it for this edition.
-Tom.

Don't get shut out … if you have thoughts of attending the workshop get your reservation in now … we will cut it off at 12, maybe less. http://supportandresistance.com/seminar-signup.html

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EDUCATION PAGE
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It comes as no secret to any of you … I trade with very short stops. The theory behind it is simple, really. I rely upon trading the stronger areas of Resistance and Support. Since I do, I have the right to expect it to do what it is supposed to do. I can recognize quite quickly if it isn't doing as it should or, at least, as I expect it to do.

This is a huge trading advantage, I believe. One of the most important concepts of speculating or gambling or playing other games impacted by odds and probabilities is limiting our losses. If we are ONLY playing the strong ones … well, the stronger they are the easier it is to discern when they aren't doing as expected.

With this knowledge we then don't need to give a trade room to breath. Giving it room only guarantees the price of recognition will go up. We have an incredible advantage to exploit. We have early recognition that most likely this trade ain't gonna' work.

While others are giving it breathing room and watching the loss multiply we are comfortably on the sidelines waiting for the price flow to once again set us up for a trade off the big S&R. This concept of short stops only is used and the very start of a trade.

The fact that I work with very short stops is one thing, once a trade is initiated and going in the right direction the question of risk takes on a different character all together. We will loosen up the reins a tad ONCE IT HAS SHOWN US ITS PREPARED "TO DO THE RIGHT THING."

We are prepared now to give it a little more room right up until there appears on the price flow horizon a reason to alter our relaxation of our grip on the trade. This is, of course, the appearance of another S&R level. It might be weaker than, stronger than or equal to the strength of the original S&R level that triggered the trade.

We will now readjust our RRR based on our read of the relative strength of the approaching S&R line. We will tuck back into our hard protective shell as the threat arrives. We will now shorten up our stop again in recognition of the impending effects of another S&R line.

The stronger it is, the stronger we clamp down on the trade. If you think this through correctly and logically you can't help but see the conceptual beauty of it all. To test this with an example, let's look at our new friend, The Russell 2000 Index. We start our trades off with a very short stop rarely more than $100.

I want out of this trade the moment I have some bankable evidence that my trade hypothesis is wrong. The earlier the better. We know from a look at the chart this market routinely swings $200-$300 within rather short times frames. If we entered trades AND continued with a very short stop we'd most assuredly get whipped to a fare thee well and frequently.

It's just as plain as the nose on your face that you must loosen up a bit once some measure of accumulated profit is in evidence. We can stay relaxed since we are now at Break Even and essentially using the other guys money, not our own. However, just because it is sorta' found money, we don't want to be stupid either in making it too easy for those other guys to take it back.

The way we do that is to be aware when other levels of "what's most likely" power S&R is coming up on the horizon. We'll then show respect for that by doing a quick calculation of the periodic RRR and taking the steps to once again tighten up.

THT Big Weekend Edition for 3/13/05

First of all, my apologies for neglecting the blog for this week...I have been unable to access blogger.com until today to make the posts.

So without any further ado, the latest testdrive version of Part One of the Traders Helping Traders Big Weekend Edition is at http://www.supportandresistance.com/testdrive.html

Stay tuned for the rest of the trades for this week which will be posted shortly.

-s