Book: Kane Trading on: Entry Techniques
January 2-4, 2004 Commentary (weekend edition)-
Today I'm going to 'get a little wild' (actually, a lot wild) and show some of the concepts that I so clearly develop in Kane Trading on: Advanced Fibonacci Trading Concepts and Kane Trading on: Trading ABCD Patterns. Let me discuss this a little bit first, though. Sometimes I don't clearly explain in this column every step of how and why I form the groupings that I do. There are a few reasons for that.
First off, there is very limited time and space for this column. As it is my columns are too long and are taking me just too much time to prepare. I simply don't have the room to add in more detail. Secondly, if I explain everything that is in all my books, there is no point to having the books (besides the fact that, realistically, I couldn't cover all that material in this small column no matter how long I had to do it).
Now some may think that is just fine because then they wouldn't have to pay the rather nominal price of the books. But that's just not reality. If I don't have the money coming in for the books, I can't cover the expenses for the website (not to mention that I would be getting no compensation at all for the endless hours that I spend on this project), and I would have to close it up. That wouldn't benefit anyone.
This column is meant to be a support and idea forum for those who have bought the books and want to keep up on the latest ideas that I may have, as well as watch some of the application. It's not designed to teach everything in the books to the point that the books are no longer needed. The column is also designed to allow new viewers to the website the opportunity to see the Kane Trading methods and make a decision if they feel that the methods may be of help to their 'Trading Plan'.
I mention this now for a few reasons. Today I am going to show some additional things from AFTC that I have not shown in this column before. This is meant as a supplement to the book, not as a full explanation. What I will show will be the most clear to the people who are familiar with the material. Understand, though, it is just a glimpse of some of the ideas and how I apply them.
I have been thinking about all this a lot lately, as I am getting an endless string of e-mails asking me how my material is 'advanced' and how it differs from the literally endless string of Fibonacci knock-off clone websites, books and services. The conclusion that I have come to is that with so many clones out there, most, if not just about all, containing nothing new or advanced, many people are telling me that they are feeling 'ripped-off' after having bought some of this clone material.
These people, and rightly so, are getting extremely cautious and leery to buy anything more on Fibonacci or related subjects. As a response to this, since I can't keep writing the same long e-mails to each person who asks me these types of questions, I will be getting to work on a free article soon to provide more detail on why my material is advanced and unique, and why it isn't a knock-off of the same old stuff.
Some people repackage, and some innovate. I totally innovate. If you have my books already, you know this, and I'm sorry that you have to read through all this. But this column is also here to provide information for those new to the Kane Trading website who are trying to see what it is that I do here. I wanted to clear this up for those readers.
I feel that if one just follows this column it should be completely clear that I am on another plane when it comes to this material, but I guess that is not clear to everyone. I hope the new free article I will be writing will make this as clear to the newcomers as it is to me. When the article is ready I will post a note here, and on the 'What's New' page.
With all that said (phew!), let's move on to something I am watching in FDX. This is an interesting example, not because I feel that it is a particularly great potential trade setup, but because I can show some of the things that I am doing with the setup. Let's start with a daily chart on FDX, with a pattern that I am looking at.

Chart 1
Now, is that too many numbers? Not for me. I see two groupings forming, an upper and a lower. I see two layered support zones where I can watch the behavior of FDX and get a handle on what I think it may do in the area. Each grouping is about one dollar wide. Some groupings on some issues are extremely tight, and some are not.
You might elect not to trade an issue if the groupings don't fall real tight. A real tight grouping implies that the issue is extremely 'harmonic'. But also look at the pattern trades that you have been trading, and look at the area that you consider the potential trade area. How wide is the area that you are looking at in your current trades? I doubt it's less than a dollar wide on a sixty-six dollar stock.
What I have here are two areas. This pattern may complete in one of two ways, as I see it. I'm going to watch both areas. Perhaps I may get triggered into an entry on the first grouping, only to get stopped out and then re-enter on the second grouping. That's trading. Some traders may be willing to take an entry on the first grouping (if an entry trigger gives them a signal), and then put their stop below the second grouping. For some traders, that may fit into their 'Trading Plan'.
But all this is not why I brought up this example. What's the context of this trade? If the traded timeframe is the daily, what does a weekly 'context' timeframe show me? And am I done with my groupings? Let's look at a weekly chart of FDX.

Chart 2
The chart is a little compressed, to show the greater context. Where's my pattern? It's that tiny little thing on the top right of the chart, with the arrow pointing to it. It's difficult to discern on this chart. Now we can clearly see that the pattern is set up to continue the trend, but that the trend is already quite extended. (Not to mention the major pattern that completed at that top, right at my 1.902 retracement of the XA leg. Do you see it?)
That's not to say that it can't go a lot further, but that's something to note for your game plan. FDX is also near it's all-time high. There's so much here I could spend a week just discussing it, but I don't have the room here. Instead, I'll get on to my very, very interesting point.
As outlined in AFTC, I go back quite far and use swing-points from 'ancient' data quite frequently. That's not always clear with my examples, because all you get to see is the groupings, not how or from where I created them. Many don't believe in using 'old' data. I don't believe in not using it.
When I saw this weekly chart I saw two swing-lows that I wanted to use, to see what they would tell me. Which ones? October '98 and September '01. Now, does either of those dates sound familiar? Did I pick them because of the dates? No, I was just looking at the chart. I didn't look at the dates until afterwards.
Is it possible that this tiny little pattern could complete at an area that would have anything to do at all with those two major swing lows, the earlier one well over five years ago? In my opinion, you bet. And even if the pattern doesn't 'work' one bit, what I am about to show you is just as incredible and fascinating to me, regardless.
Let's put two retracements on the FDX chart, from the infamous October '98 low, when it seemed like the entire financial world was about to melt down, to the recent high. I will stay with the weekly chart.

Chart 3
I've added the .186 and .236 retracements onto the chart. You may be familiar with the .236 retracement, as it is used here and there by other writers. The .186 is less common and almost unheard of. It can be derived directly from Phi (the Golden ratio = 1.618) quite simply.
Let me move on now to adding two retracements from the September '01 low. I'll add in the .236 and the .300 retracement. Although the .300 retracement seems 'made up' (and not Fibonacci-ish at all), I have derived it directly from Phi, again in a very simple manner.
This number is critical to my adjusting Fibonacci trailing stop method that I presented in Kane Trading on: Trailing Stops. If I didn't find practical use for what I derive, I wouldn't use it, or present it. As an aside, have you ever seen a price sensitive, adjusting Fibonacci trailing stop technique, using newly derived Fibonacci numbers, in any other book or on any other website? If that's not advanced and unique, I don't know what is. But I have it, in Trailing Stops.
Let's see what these two retracements look like on the chart.

Chart 4
Oh, my gosh. How is that possible? They fell right on top of each other. Notice anything else? Look back at the daily chart with our groupings. Yes, they fell right on our groupings. Does that mean this is a sure trade? Of course not. This trade may not even play out at all.
The fascinating thing is simply that there is an overlap in the two different sets of retracements from these two major swing-lows, this many years later. This shows me that the price action today is directly related to what happened all those years ago. If it weren't, these retracements wouldn't overlap so exactly. Unless, of course, this is yet another random coincidence. You get to the point that the odds against this many coincidences gets much greater than the odds that the events are random, in my opinion.
And how close did those retracements fall to each other? Let's look at a closer view of the weekly chart.

Chart 5
I just can't come up with words to describe how amazing this is to me. Two major world events in market history, and look how harmonic they are with respect to each other and today's price action. This has nothing to do with the trade that I am showing. It only has to do with these two retracements. If this helps me find a trade today that's great, but don't miss what I am showing you.
Let me reiterate my point from earlier. Have you seen anyone else do what you have just seen here? Is this in any of those knock-off books or on any of those websites? Has anyone shown you how the price action from five years ago can possibly be helpful to a trade that you are looking at today?
Have you seen the use of the numbers that I used here to do this? How about the .300 retracement? Tell me where you've seen that, besides here? (Don't confuse this with the coincidental 30% pullback that some people talk about.) If you didn't know that retracement, how could you find this overlap? This retracement can be simply derived directly from Phi, in a manner just as simple as deriving the .786 by taking the square root of the .618. If what I've just touched on today isn't advanced, then I just don't know what advanced is.
It's another thing to decide that you don't like the material, or that it doesn't help your trading. Many find it disconcerting to see all the new numbers that I have derived and that I am working with, and many want to stay with the simple basics. I think that's fine, if it works for them. But I am blazing a new trail here in Fibonacci studies, and that's what I am presenting in my books. If you want new, this is the place.
I'd like to conclude with a few remarks. I have been advised by colleagues not to make the type of remarks that I am about to make, and to not be too 'personal'. I feel compelled, though, to 'be me', and tell it like it is. I want to remain professional, but I also want to be the person that I am, and hopefully my readers will appreciate that. Here's what I need to point out.
Nothing in today's column should be construed as arrogant on my part. If it comes across that way, that's not my intention, or how I feel. It's meant to show that I am 'busting my hump' here to come up with new, innovative material for myself and for my readers. If any frustration is sensed, that's because I am frustrated. I'm frustrated at my lack of ability to properly convey how innovative and unique my material is.
As a consequence I have to spend an inordinate amount of time answering e-mails trying to explain this. This is time that's delaying me from work on Kane Trading on: Trade Management, and other works. I also want it to be clear, and I mean crystal clear, that my comments and frustrations towards knock-off books and websites are directed towards that alone, and nothing or no one else. I am not ever going to specifically point a finger at anyone and/or compare my material to theirs, or say that they are just a knock-off.
There are some very legitimate Fibonacci websites out there, and I'm proud to be associated with such a group. I am only saying that when hoards of people clone other people's work and flood the market with material, many people feel very 'ripped-off'. Those aren't my words; those are the words of many of my readers, sent to me in e-mails, describing some of their experiences with these other products.
This really makes it difficult for those that work hard trying to add to the knowledge base of the field to be accepted. People are growing increasingly sensitive to getting taken because of the high volume of this knock-off material out there. I want it to be clear that I am in no way slamming any other true Fibonacci websites, or saying that I'm better, or anything of that nature. I'm just trying to ease the minds of those who have had bad experiences.
I have presented more and more of my material here to clearly show that this is no knock-off site. I think that I have shown enough for the point to be clear, and going forward I want to focus on trading. After all, that's what we are all here for. With my upcoming article I want to put this topic to rest. It's a new year, I have a lot to offer, and I really want to get to the trading.
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