Monday, May 22, 2006

Traders Helping Traders Big Weekend Edition - Part Two

Nothing like a complete lifestyle change at 60 … lol. The kids are getting settled in as well as Jacki and I. Pretty much a tossup as to who has the more difficult time of it. I have a renewed appreciation for Mom's and Dad's let me tell ya'.

This was an expensive week off as many markets made defining moves … most of them lower … in some cases MUCH lower.

We tend to do better trading to the short side. Most markets break harder lower and climb in a more measured fashion. Given that we are playing exceptional strength of support and resistance we have a history of catching lower moves as they occur more violently and in shorter time frames. Our trading style is uniquely matched to hard moves. Our methods are suited to this type of price flow.

We manage very tightly as a rule and hard moves automatically overcome our conservatism allowing us to more fully capture a higher percentage of the move. Works kinda' nicely and is sort of our "jackpot" opportunity. I see lots of money available to us last week. Hopefully all our work previously had you set up to get your fair share without my presence.

I suspect we'll see lots of volatility this coming week and look forward to getting re-engaged in the markets. I have some live speaking engagements coming up. Sometime in July I will be doing a 1 day event at PFG's offices in Camarillo. I believe this will be a free one and I'll provide more details after meeting with them this coming week. On Saturday, August 26, I'll be in Denver, CO speaking to the Denver Trading Group sponsored by the CBOT … www.denvertradinggroup.com

Check out their website for details and costs. I believe non-members are welcome. I hope some of you will be able to make it. Always nice to have at least a few true believers in the audience.

We have nothing to review so we'll just jump right into our plans for next week.

NEW TRADES

JUNE TBonds

Bonds rose by almost 2 points during the week. The week ahead of us is light on economic reports but will be held somewhat in check by 2 big auctions. While the auctions will weigh on price advances the long weekend will play an advance in price as lots of big money will "park" in Bonds to escape risk over the long weekend.

Bonds closed at 107-05 on Friday so we'll be looking to kick things off at 107-00 or 107-16. After an initial play off -00 or -16 we can look at opportunities at the quarters, -08 and -24.

DECEMBER 06 Eurodollar

I'm going to limit myself to only two plays in the Eurodollar. I'll buy a retest at 94.620 or sell a break lower. Stops will be .625 on a sell and .605 on a buy. The target for the buy is a return to .670 but I'll start squeezing it pretty good at .680 and up. For the sell we run out of structure by .580 so we'll rely on periodic RRR calc's to sustain our management after .580.

We'll also play off .680 and .700. I'll sell retests of either that fail with close stops ending in a 5. I'll buy a breakout above either as well with the same stop scenario. Target for sells is .600-.580 and .760 on any buys.

JUNE Canadian $

There's a bunch of structure above and below us but not much to hang a hat on at present levels. I'll sell a break below 8920 or buy a rise from there. Both these trades require short stops as the level of S&R, while sufficient to take a run at 'em, does not inspire a whole lotta' confidence.

The hard bounce off 8880 on Friday does not bode well for the short play but we'll take it just the same. Expect the sell off 8920 to pull up on 8880 and we'll be ready to bail there quickly. If we roll tight and survive to see the break lower than 8880 I'd expect 8820 to be the next logical end of the line. For the buy side I'll target 9040-60 and be squeezin' the life out of 'em in that area. I'll buy the turn at 8880 if given the chance. The stop is at 8877. I'll also sell a break of 8880 with a stop at 8883 if we get bounced out of an earlier sell at that point.

Up in the stratosphere we'll sell any failed retest of 8980, 9000, 9020, 9040 and 9060.

Again, I'm not at all sensitive to the time only the price so you can do these trades at any hour. I will continue to play only hours coinciding with the hours of the RTH session.

JUNE Swiss Franc

Initially, I'll focus on the range of S&R at 8249-8244. I'm looking to sell a retest into that range that fails and turns lower. The stop goes at 8251 for risk of $125 max. The target is 8175/80 for profit potential of about $750. This gives us an RRR of 6:1.

A retest into the 8320 or above area is a sell on the failure as it breaks lower than 8320 with a 23 stop and we'll look for a return to 8175/80. We know thought that 8249/44 has the power to bring it to a halt and requires a roll there to protect us.

The steep run-up in prices during April and May has left a void of solid structure so we'll again have to rely on periodic RRR calculations to assist us in managing the risks along the way.

JUNE 06 Mini Russell

The Stock indexes were able to get the brakes applied on Friday after paring 65 points off the Russell. 715/720 was a place you'd have expected the market to find some support and it bounced back about 10 handles. Look for choppy two-sided trade on Monday. Ultimately, I think the coming week will be a rebound of sorts. Play it smart and tight on our numbers.

Here are the numbers currently in play:

785, 783, 778, 775, 773, 770, 768, 763, 760, 756, 753, 750, 746, 744, 742, 740, 737, 735, 732, 730, 728, 725, 722, 720, 718, 715, 712, 710, 697, 692, 687, 685 and 680.

JUNE Mini Dow

Much the same story here in the DOW as the 11125/11100 range was expected and an obvious level to provide support.

Here are the current numbers in play:

11650, 11600, 11550, 11465, 11450, 11425, 11400, 11375, 11350, 11320, 11300, 11270, 11220, 11200, 11175, 11150, 11120, 11100, 11080, 11050, 11030, 11000, 10980, 10950, 10925, 10900, 10850, 10835, 10800 and 10750.

JUNE Gold

Beginning Friday before last Gold has lost about $80 after topping at $728 and ounce. We settled at 657.50 this past Friday. This puts back in territory where we have lots to work with. Gold bounced 6 bucks off the lows on Friday. Neither 650 nor 651 were significant as support on the chart so we may expect more weakness accompanied by moderate volatility shoving the market around in both directions. With a weak slate of economic news on tap for the week it might be tough for Gold to get a foothold and establish a solid direction up or down. The lack of a support line and economic news might very well translate as the most likely direction being down. At least until 622/630 gets tested.

We'll look to our $10 Gold Channels. I expect a week of solid profit taking.

JULY Cotton

We opened last week by testing the recent high just above 52.00 and then collapsing. I'll buy a break above 50.00 looking for 52.00. The stop is 51.97. We'll want to roll stops at 50 point intervals … 50.50, 51.00, 51.50 … on the way to 52.00. You can do rolls based on periodic RRR calc's along the way in between the .50's.

We can sell failed retests at 51.50 or 52.00. We'll place stops at 52.03 or 51.53 if we get a look at these 2 sell scenarios.

JULY Cocoa

Any retest into the 1560-70 range will be sold with a stop at 73 or 63. We'll be looking for 1500 as a target and we'll roll at 1530 and 1520. We'll also sell a break below 1520 with a 23 stop. We'll also buy a failure to press lower at 1520 with a stop at 1517. I'll also sell a retest of 1530 that fails to make it higher as it falls back heading south. The stop is 1533. This one may not have a chance at anything below 1500 and maybe even 1520 is the best we can get. It's a very poor RRR but this is Cocoa and anything is possible. That obviously means we need to be on top of the management task.

JULY Corn

On Friday, 5/12 Corn gapped significantly higher. We then spent the ensuing week bouncing around between 2.64 and 2.56 until last Friday. We broke sharply from 2.57 to almost 2.52.

It's a toughie to read. I'll sell a break below 2.50 or buy a failure to press lower there as it turns back north. These are scalps so the penny and a quarter stops and rolls are in play.

I suspect we'll get a clearer picture of things after Monday's session. Be sure to check the Daily Update.

JULY Wheat

Wheat has been on a rampage for the past 9 days topping out at 4.27. That added about 60 cents to value … until Thursday and Friday of last week. It did snap back on Friday settling at 4.16 ¼.

I'm an observer tomorrow. I don't see anything I'd be willing to take a run at tomorrow … unless.

If we retest 4.26 or something close and fail I'll try to get hooked up there with a sell. It'll be a scalp as well so penny and a quarter. I'd be looking for the 4.02/4.00 area as a target.

That's it for this edition. Thank you all for your patience and support. Keep in touch at the Forum. Erich and I are talking about a change in the Webinar schedule so keep your eye peeled.

THE EDUCATIONAL STUFF

In the Daily Update for Thursday prior to my forced vacation I mentioned in comments for the CD and the Russell that I'd be writing in greater length about a couple of key concepts. Here ya' go …

I have a very different approach to trading. Rather than taking immediately preceding groups of price action defined by time frames, analyzing them and then deciding entry points, I begin with the daily chart, eliminate any view of time and look only for extraordinarily strong points of resistance and support.

I decide in advance the price levels at which I'm willing to put money at risk by entering a trade and then lye in wait for the market in question to come to my price point. We are ambushing the market at predetermined points as opposed to chasing along the price pathway just traveled by the market.

Operating in this way just makes so much more sense to me than the more traditional way of approaching trading. As a consequence of trading this way I often must exhibit great patience until the market gets to me. I am a day trader so it can get frustrating when the markets take their own sweet time in getting to our prices or if they hang out at high or low points where we have no discernible structure to play with.

This frustration can play games with our head. It can get us to question our methods and erode our discipline. It can lull us into becoming complacent and lackadaisical in our watching of the market. It can make us question the likelihood of us ever getting another trade on in a given market. We get panicky about leaving available profits on the table. We assume every one else is making money and here we sit.

We have adequate and frequent evidence that this is simply untrue and is wrong thinking. The markets always, eventually come to our ambush points OR generate new structure at different price levels allowing us to participate anew. Just when we swear we'll never get a trade on the market will put one right in front of us.

Case in point: We went 4 straight days of no trades in the Russell week before last. On Thursday the market put a monster day in front of us. The daily range provided a possible $2200 day. We captured $1580 or 72% of the maximum available.

We had to be ready. We had to be as confidant of our methods as if we'd just reeled off 4 straight previous days of profitable trades instead of the 4 goose eggs we posted. We had to know in our minds it was coming to us. That can get hard to do when you see a market moving around at extreme highs or lows and your mind is thinking, "I'm going to miss out on the next leg higher." "This thing is going to break the lows and I have no way to get in, I've got to do something."

As confidant as I am with what I do, I STILL feel that way sometimes. After all, I've only been trading this way for less than 3 years. Almost every time I've been faced with writing a TT or a Daily Update I have cringed when typing "I can't do anything here until the market drops back, pops up or additional structure builds". Every time I worry this is going to be the one that gets away from me with me on the sidelines. Guess what? It has never happened. Not once.

If you set the ambush, they will come … with credit to "Field of Dreams". The markets never change. But traders have a real tendency to change their methods and approaches feeling as though the markets did, indeed, change before their very eyes and they must make some type of adjustment to compensate. It isn't true; it's a trick; a psychological illusion to get you off track and send you back to square one.

It's very hard not to succumb. Believe me, I know. There is great value in maintaining your discipline.

- Tom