The Kane Trading Mentorship Program
August 4, 2004 Commentary (mid-week edition)-
Well, as all of you have figured out by now, I wasn't able to post a weekend commentary. I had surgery at the end of last week, and the recovery is turning out to be a bit longer and more difficult than anticipated. I was only able to get this together for today with a lot of assistance. I will do the best that I can, given my current situation. If I can, perhaps I will make up the weekend commentary at some point and post it in the archive.
Let's look at a topic for today. I am frequently speaking about failed patterns. This is an aspect that few pattern traders speak much about. I like to say that a pattern reaction tells me something, and a failure tells me something. And a failure after a good start also tells me something. I'm like a detective, and these are clues that enable me to make the best assessment of conditions that I can.
Let's go back to wheat, and the ABCD pattern that I was playing back then. I'll use the September contract now, but I was looking at the July contract at the time.

Chart 1
The ABCD pattern was a large, significant pattern, set up to continue a big uptrend. It started off great. Wheat is getting to the area on this chart where a failure might occur. If this large pattern fails, it could be the start of a serious downtrend. Let's move forward to today.

Chart 2
Wheat didn't go much further, and then it reversed hard. It's been nothing but down since. This is a very tradable trend. The pattern failure told me something.
Let's do the same analysis on corn, which I was also playing off of a similar pattern.

Chart 3
Corn really moved solid off my ABCD pattern grouping, as discussed in previous commentaries. I was doing some scaling out, and watching for potential failure up here. Let's see what happened.

Chart 4
Corn peaked, and rolled over. It's been nothing but trend down since. So, another very tradable trend developed after the failure. The pattern failed after a bounce, and that alerted me. This was a very large, very significant pattern for the uptrend. Once it didn't continue the reversal off the completion point, I was shifting to trend continuation techniques for a downtrend. This is a key part of my trading strategy.
Now, I'm not going to criticize other traders, but most pattern traders I know only trade the patterns. They don't do any 'trend continuation' strategies. Hey, I understand, it was getting burned over and over on that type of strategy that led them to pattern trading. But I retained a lot of the skills from that style of trading, and blended it in to my current 'Trading Plan'.
A large percentage of my trades are not taken off pattern reversal points. They are taken in the trends that follow, in the 'context' of the pattern and the market behavior. There is only one pattern reversal point (for all intents and purposes), but there are sometime many entries after that. I need to have everything open to me so I can pick and choose the best of the best, based on how the issue is acting. This is just something to examine, as you form your game plan.
The next commentary will be the weekend commentary, if I'm able. I hope to post it Sunday. I'm doing the best that I can for my readers to keep this column going during my recovery because I know so many look forward to reading it. I'm on the edge of being able to come through, but I'll do everything I can.
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