Tuesday, June 27, 2006

Traders Helping Traders Big Weekend Edition - Part Two

Inside this Issue: Introduction >> Trade Review >> New Trades >> Education Page This was an interesting week. On Tuesday late afternoon we got a phone call asking (ordering) us to make ourselves available to the Court the following day. We actually knew this was coming but not the exact timing. Surprise, Surprise.

We spent the day in court and then returned home with 2 investigators from the court. Thru the course of the day we had to document our finances, family history and answer about a bazillion questions on the background check. Gee, here's a thought. Why not do this in order to get a license to have kids in the first place. Duh! Each of the kids was interviewed for better than an hour … Jacki and I longer still. A grueling day to be sure. But, to good purpose, no doubt.

Our week of trading was one of the slowest in recent memory. Partially due to the markets lethargy and somewhat to my diminished focus ability. We still managed to pay the bills and walk away with a net contribution to the family's favorite charity … us!

No one market stood out, it was spread across a wide swath of the markets we trade each contributing some here and there as the week progressed. This is very typical of our trading. Rather than a big score now and then we tend to accumulate our weekly result a bit here and a bit there. We are almost unaware of our performance until we tally the aggregate result at the end of the week. This pleases me and also suits my personality. I hate adrenaline when money is involved. The pucker factor is fun in Auto racing, skiing and other hobbies but not when cash is on the table. Our style of trading is driven by my personality and lifestyle choices.

Third warning … I'm going to be in Denver, CO on August the 26. That's a Saturday. I will be conducting a 1 day presentation of my trading regime for the Denver Trading Group. If you are inclined, they do allow non members to attend. I think the cost is $30. You should it pop up on there schedule soon. There website is …

http://www.denvertradinggroup.com/Pages/Schedule.html

This is a great group led by Ron Rossway with members all over the country, in fact the world. It should be a great day and I'd love to see any subscribers there. Email me if you have some interest in attending. We just might put together a little mixer the night before just for you guys and gals depending on when I can get a flight in.

Let's have another great week of management and results.

TRADE REVIEW

SEPTEMBER TBonds

I kicked things off by buying 106-02 and getting stopped out at B/E. Next we sold 105-29. Bonds made it down to 105-20 and bounced taking us out at -23 for $187. I tried to sell the quarter at -24 and held out for -23 but couldn't get a fill there. We then traded a 2 tick range for almost 2 hours to end the day.

SEPTEMBER Canadian $

I sold 8916 and exited at 8991 using "once broken" theory for $250. Interestingly enough, we climbed right back to our 8933/18 range and failed again. I sold 8916 twice more and got stopped at 24 on one and 21 on the other losing a combined $130. Rats. They never gave us another look as the CD bounced around within our range.

SEPTEMBER Mini DOW

I sold 11095 and exited at 11055 using our 11050 number as a guide for $200. I then bought 11060 off the 11050 number. I exited at 11095 for $175. I then bought 11105 and exited at 11139 for $170 and called it a day.

AUGUST Gold

I bought 581.50 and exited at 584.00 for $250. I bought 581.50 a second time and exited at 586.50 for $500.

SEPTEMBER Cocoa

I sold 1543 and exited at 1543 for B/E. I moved on to other markets.

JULY Wheat

I sold 3.67 ½ late in the day after the failure at 3.69. I exited at 3.66 for $75.

NEW TRADES

SEPTEMBER TBonds

The action this week will be all about the FOMC meeting and the release of the minutes as watchers of the economy are certain we'll see another 25 basis point bump in rates. The meeting this time is a 2 day affair with results released on Thursday.

In addition the report slate is a full one with a couple of auctions of 2 year and 5 year notes. It should be a volatile week but somewhat subdued until Thursday.

We closed at 105-22 on Friday. We'll be focused on 105-16 and 106-00 for initial plays on Monday.

DECEMBER Eurodollar

I'm still miffed with the current state of affairs in the ED. I just have nothing to work with here at the moment. All I can see doing is to wait for more structure to build or a return to 94.400. Should we retest that area I'd be willing to risk a sell on a failure or a buy on a break higher.

SEPTEMBER Canadian $

I'm pretty sure the number is 8920 for first focus on Monday. It does concern me some that we've had a number of thrusts lower in the form of wicks that have snapped back sharply.

With that caveat thrown in I will play the 8920 level buying a failure that turns north or selling a break lower. The stop on the buy will be 8917 and 8923 on the sell. The target on the buy is 9040 and 8820 on the sell. The sell trade needs rolls of the stop at 8900, 8880 and 8840. On the buy rolls need to be done at 8960 and every 20 points higher.

A failure at any of those 20 point increasing numbers is in the plan also.

SEPTEMBER Swiss Franc

We find ourselves in no man's land at Friday's close of 8091. I will trade 8050 by either selling a break or buying a failed retest there. Stops are 8047 on the buy and 8057 on the sell. Sell Target is 8000 making it a modest RRR trade. We need to protect the trade with a roll at 8025.

The target for the buy is 8150. There isn't much from entry on up so periodic RRR is our protective device.

Failures at 8125, 8150, 8180, 8200 and 8225 can also be sold. Use any of the intervening numbers mentioned here as management guidance for rolls, etc.

SEPTEMBER 06 Mini Russell

I don't think the stock market is going to like the current sentiment on rate increases. I expect the market to show it's displeasure by giving up value early in the week … maybe all week long. I expect we'll also see some extraordinary volatility which will show up as wild choppy swings higher and lower ahead of the FOMC meeting. I will probably tighten up my management by a couple of clicks; shortening the initial risk and rolling more aggressively.

Here are the numbers currently in play for September:

790, 785, 783, 780, 778, 775, 772, 770, 767, 765, 760, 755, 750, 747, 745, 742, 740, 737, 735, 732, 730, 728, 722, 720, 717, 715, 712, 710, 707, 704, 700, 695, 692, 690, 685, 683 and 675.

We've added a few new ones.

SEPTEMBER Mini Dow

Same story here as with the Russell, pretty much. I would expect the volatility to be a bit less dramatic.

Here are the current numbers in play:

11780, 11750, 11700, 11600, 11580, 11550, 11500, 11450, 11400, 11380, 11350, 11330, 11300, 11265, 11200, 11180, 11150, 11100, 11050, 11000, 10980 and 10950.

AUGUST Gold

Gold has set in a range between 590/570 for the past 2 weeks and we've done pretty well exploiting it. We'll continue on with the $10 channels.

OCTOBER Cotton

The Cotton chart presents a really easy read. We'll buy a retest of 52.00 or as close as we can get to it. I'll take any buy I can get up to 52.20. The stop is 51.97 and the target is 55.00. Along the way we'll do rolls at 52.50 and then every 50 points higher. That isn't nearly precise enough so we'll fill in the space between with by observing periodic RRR.

JULY Cocoa

I'm only willing to do one trade here. I'll sell a failed retest of 1550 with a stop at 1557. I'm looking for a return to 1525. This trade makes no sense from an RRR perspective; it is clearly not a mainstream trade. What I'm REALLY looking at is pretty transparent. That would be a break lower than 1525 that has been the lower boundary of the recent range.

I would classify this as a very risky, aggressive trade and would counsel it not be done by most. Only larger accounts with a higher pain threshold should consider this one. JULY Corn

I know this will come a s a shock to everyone but … I will buy 2.28. I will also buy a break above 2.42 or 2.44. I will also sell a failed retest at 2.44.

All the above trades are intended to be scalp trades so I will be using the penny and a quarter stop/roll plan.

I will also begin tomorrow the pursuit of a 250/280 Corn Call Vertical spread. I will enter a spread order to buy 1 250 September Corn Call and sell 1 September Corn 280 Call for 5 cents, $250 or better. I will not let the spread reduce in value to less than $125. I am therefore risking $125 plus 2 commissions to make $1250. I will look seriously at closing the spread with anything above a $750 profit.

NOTE: July Corn FND is Friday. Stay tuned to the week's Daily Updates for advice when to roll to September.

JULY Wheat

I will buy a retest of 3.57 or 3.60 that fails to punch lower as it turns back north. I will buy a break above 3.70 or sell a failed retest there. These are all scalps as well, so penny and a quarter stops/rolls for Wheat.

Wheat FND is also Friday.

That's it for this edition. Keep in touch at the Forum.

Tom

EDUCATION PAGE

This is a reprint of an Ed Page from last year. I got several questions via email regarding long runs so thought this might be an appropriate response. The examples are bit old but you'll get the picture just the same.

Today I'll address the issue of long runs that end right at or near one of our numbers.

One of the core concepts of our management is, once in a trade at one of the strongest of the strong support or resistance points, we are looking for "what's most likely" numbers that have the ability to stop or reverse moves in our favor. We watch for them in the belief they can rob us of accumulated profits if not respected appropriately.

Frequently, we are unable to get into a trade at one of our trade target numbers and it will run up or down to another equally desirable number at which top initiate a trade. We need to keep in mind our conversation about what fuels market moves. There is evidence that the arrival at a second valid number may have been accomplished by burning up all the available fuel available to get there. No doubt, sometimes it will keep right on chuggin' or pause to take a short fuel stop before continuing. Sometimes however the fuel is just gone, it may have had so much momentum and velocity that it breaks the next number but then snaps right back.

As an example take a look at Tuesday, October 4th intraday chart for the December Bonds. You'll see we opened at 113-23 and then moved smartly right up to 114-03 … a rapid movement of 12 ticks. The candle at 8:50 CDT hit a high of 114-03 and immediately failed. The 8:55 candle was red closing at 114-00. The next 5 minute candle at 9:00 am CDT opened at -01 went to -04 and failed closing at -03.

Clearly, -03 is one of our target fills for buying the bonds. In this case we got a whisper of sorts from the market that we'd used all available power in moving the previous 12 ticks. 12 ticks here is much more significant than, say, 12 ticks in Cotton. Although we have rules and we try to trade accordingly, we also need to understand that whispers should give us reason to allow the hair on the back of our neck to get a bit prickly. We'd be foolish to plunge ahead despite the whisper.

You have seen me many times simply, quickly and without any other reason exit trades after a long run in some of our more volatile markets, i.e. Cotton, Cocoa, Russell.

This tactic is more recognizable in the above, high volatility markets but, it appears regularly in every market. In some it is harder to hear the whisper but it's there just the same.

It has repeatedly worked favorable to us, upon observing a long run, to exit. There must be a reciprocal to this. If it is true that exiting after long runs has benefit when we ARE in trades, then it must be so that upon observing a long run when we are NOT in the trade we should be cautious if not outright suspicious of the markets ability to continue moving in the same direction as the just completed long run.

"Long" is a subjective term and changes in magnitude market to market. Take a look at a few intraday charts in any markets you trade and see if you can't define "long run" as it applies to that market. Observe how many times a move of that duration ends the run and any further advance in the same direction as the "long run" is precluded. I think you'll find another useful tool at your disposal.

Tom [email protected] 805.483.6060