May 30, 2004 Commentary
Today I'm going to cover a little
business first, and then we'll get on to some charts. After giving it quite a
bit of thought, I've decided that I need/deserve to take a little break (what
most people call 'a vacation'), which I rarely do. I'll probably just hang
around and play golf, but I'm going to be away from my 'trading desk'.
on getting back to work around June 20, depending on how rested I feel. That
will make my next scheduled commentary the mid-week edition on Wednesday, June
23. It's possible that I may write a weekend commentary on Sunday, June 20, so
you can check back late that Sunday night or Monday early and see what I
decided to do.
I would like to suggest that readers take this time to go over the
archived commentaries, as well as the free articles. During this break I will
be thinking over some possible changes for the daily commentary, as I mentioned
before but never did implement. I'm planning on putting up notice of my rest
break on the daily commentary page on Tuesday, so this last commentary will be
up here until then. It will also be posted in the archives.
I also want
to point out that regardless of what I finally decide to do on my break, I will
be away from my 'trading desk', computer, and e-mail during this time. I will
not be able to answer any e-mails or ship any books/eArticles until I return.
Feel free to make any purchases during this time, but please understand that I
won't even know that you have done so until I return to my computer.
process these orders as soon as I return, but I really hope to avoid having a
stack of e-mails when I return asking why I haven't replied back or shipped the
order yet. If waiting is going to be an issue for you, I ask that you just hold
off ordering until I return.
Let's move on to some charts. I'll start with a look at
my grain plays. I mentioned how these are just not acting 'right', and how I'm
feeling more concern than I usually do at this point in a trade. The wheat
started to weaken, and it did it at just the point that would give me the most
concern. Let's look at an 80-minute chart, and I'll show you what I was looking
Wheat formed an ABCD pattern, set up to
continue the downtrend. Although this pattern is much smaller than the large
ABCD that I am playing off of with this long play, it is something that I don't
like to see if we are in fact in a new uptrend. Although the ABCD was an
alternate ABCD pattern, completing at the .786 price projection, the time
factor showed a high degree of symmetry.
I drew in a trendline and waited to
see if there was a bounce. There wasn't. I opted to close the play in the
approximate area of the second arrow. The first arrow shows the approximate
area of my entry trigger. Net overall I closed this just slightly above my
entry trigger price. I consider it a scratch.
Now, could/should I have at least
given it more room, and let it test the C point swing-low from this smaller
bearish ABCD? Or even the major grouping for the larger ABCD pattern itself?
Perhaps. Normally I might. In this case the reversal off the new ABCD pattern,
with such nice time symmetry, together with an overall feeling that the up move
was just too labored and not 'right', tipped my decision in favor of
Such is discretionary trading, the only trading I do. Wheat did
continue lower after my close out, and has bounced a bit. I am very curious to
see what it does from here, and a possible re-entry is not off the table (I'm
planning on monitoring wheat and corn on my 'vacation', and nothing
Let's look at corn, now. My observation that corn was starting to
outperform wheat on a relative basis held true. The corn is looking quite good,
but I still have concerns. Let's look at an 80-minute chart here, also. The
arrow shows the approximate area of my entry trigger. Recall that corn came
within a fraction of my initial stop.
Corn is starting to move up, but the action
is quite choppy. The gap up started to look like it might give way (by one
definition, the gap was closed) and initiate a resumption of the
downtrend, and then the action turned up and set a new high for the move. There
is also a lower, unfilled gap, too. I have to give this one some time to get
going before I am able to initiate my trailing stops/scaled exits plan.
thing that I have to make clear about my trailing stops plan. As I outlined in
the book, I use trailing stops for trend trades that have begun to move in my
favor. I use my 'standard' management plan until things get going, and
if they get going I then switch over to the trailing stops/scaled exits
plan. The latter plan would not work in the beginning phases of trade
If I ever get done with Kane Trading on: Trade Management,
I will have more details on how I do this switchover from one management phase
to the other. I point it out to here so that if you are experimenting with
trailing stops and scaled exits, I suggest that you also experiment with when
they kick in, to see what works best for your own individual 'Trading
I am going to let the corn do its thing here, and see if it really
gets going. I am still not feeling great about the action, but it is moving up,
so I am giving it some room. I don't like that wheat dropped back down and
beans are just about free-falling. This will likely have me just a bit more
jumpy that I otherwise would be. We'll see.
I don't want
to get too repetitive with the commentaries, covering wheat, corn, and the ES
mini in every column, but I'm going to do it one more time. Perhaps after I
return and make some format changes to the commentary there will be more
variety. Let's look at a 3-minute chart of the ES from Friday. This was a
Friday before a long holiday weekend.
What do you see there? Isn't that something?
I'll tell you what I see, and it's quite obvious. It should jump out at you.
Take a minute and see if you can see it before you read on. This is a very key
thing to spot. Okay, you ready? I see: absolutely nothing. I would have
to have severe brain damage to try to trade a chart like this (OK, there is one
possible ABCD pattern there in the middle of the chart).
This is an
important thing to take note of. There are times to play, and times to stand
aside. This was as clear of a time to stand aside as I have ever seen.
Sometimes the way to make money is to not lose money you have already
accumulated. I don't look at daily results; I look at weekly, and more
importantly, monthly and quarterly results. It doesn't matter that I'm an
Given this, some days are winners because they don't
subtract from the work done on a weekly or monthly basis. This chart screams at
me to stand aside. There are no reasonable reward/risk scenarios for me on this
chart. I know enough not to trade this kind of action. If you don't understand
this, read my commentary from February
13-15, 2004 about the 'penalty box' and 'Mr. Hat'. I'm not going though
that again; I've learned my lesson.
Let's finish up with another 3-minute chart
of the ES.
What do you see here? You know what I see:
potentially tradable action. This was from Thursday. It wasn't a big range day,
and it wasn't a solid trend or 'ramp' day. Yet there is no comparison with
Friday. I have learned (and I am still improving on my ability) to recognize
the difference as soon into the trading day as I can. It's part of my 'read' on
the price action. I know how I need things to behave for me to trade.
I feel that
Fibonaccis, patterns and the like are great, but in my opinion I think it's
hard to ever get a complete, and great, 'Trading Plan' if you don't let the
right brain contribute some 'feel' and 'read' on the action. At least for me,
as a discretionary trader, I find it's critical. And trust me, I'm as
'left-brain' as they come. I'll leave all of you with that thought to ponder as
I go and recharge my batteries. I will see everyone again on June 23, or
possibly June 20 if I tire of 'goofing off'.
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