Book: Kane Trading on: A Totally New 5-Point Pattern
December 24, 2006 Commentary (weekend edition)-
Boy, there was never any doubt what I would be writing about this week. I was so excited Monday I wanted to 'stop the presses' and write the commentary right then. But I figured I had worked so hard on last week's commentary that I didn't want to take it right down before many had even read it. So, I waited until now. It played out so well, and so dead on what I was suspecting that I just wanted to share it right away. As soon as I posted the chart last weekend I started to get e-mails from my mentor and most serious students, saying I read their minds, and asking various questions on how I was viewing this or that aspect of the layout.
There is also a forum specifically for Kane Trading full book set buyers and mentor students where they can post on the methodology and discuss ideas with each other, and this setup and the various things that unfolded were the hot topic of the week, with some outstanding posts in there. It was just quintessential Kane Trading methodology, and I'm pretty happy I posted it in advance in here so you got to see it unfold, and to have time to do the work and be ready to watch and study, on your own, in 'real-time'.
Let's start out with last week's chart of the week.

Chart 1
I'll start with a quote on the chart from last week: "...this week's chart of the week is for you mini traders. I laid it out like I did for a reason. Do the rest of the line work and see if you can figure out what I am watching, and why. What clues are present on the chart right now with regard to that ABCD? This one should be a good educational example." Notice on the chart I showed a fantastic looking ABCD with a tight grouping and a median line lower parallel all coming right in together. Isn't this a classic, near-perfect setup? If so, why did I highlight the area with a small arrow, but put a bigger arrow downward, with a question mark?
Well, what's the 'context'? How many times have I said 'Without 'context' you have nothing?' The reason I say I may trade it, fade it, or stand aside has to do with my evaluation of the entire layout, including the 'context'. My 'context' filtering, as laid out in Kane Trading on: Multiple Timeframes and 'Context', and the other books, gives me some ideas on what I think is the most probable scenario.
If the filtering lines up with a setup I'm inclined to trade it, if the price action supports that. If the 'context' says 'no way' I may fade it (trade the other way), if the price action supports that. If I come up with something in between I may stand aside, or look for a lower timeframe premise. The market is far too complex and dynamic for me to just look for a setup and blindly take it. If that works for you, great. I'm happy for you, and I'll shake your hand next time we meet up. I'm just saying what I feel I need to do for me in my quest for long-term survivability.
Let's go up to the 60-minute chart for some 'context'.

Chart 2
I had a bigger set I had been watching for some time. The first arrow shows where I was watching that smaller ABCD. The second arrow shows a very key area of interest for me. Not only was this a key line, it was a much larger pattern there that I was pondering. It just didn't seem like the market was ready to burst up to another new high with such a small correction here, with that lower parallel magnet calling to it. Hey, I'll just go with the price action and flow, but if this sets up a 'fade' play that's what I was hoping for. The preliminary clues were on the chart already, and if they unfolded as I preferred, I wanted to 'see' the area.
I'll drop down to the 3-minute chart for some detail.

Chart 3
I was discussing with some students how there was a potential pattern from the latest ABCD book possibly setting up just a bit higher, right where I had a line waiting. I put one of two sets on the immediate action here, this one a 'natural' set. I put an offset line on there, and a few key fibs off the main swing-highs, to flesh it out.
The Russell opened up and not only completed the pattern I was watching for, it also did another pattern at the same time, right to my area of interest. I had all this work on my chart (and more, of course) when I posted the chart of the week on the weekend. So, I was thinking 'fade' the setup and watch for that lower parallel on the bigger set, and watch for a smaller setup to help me fade, as I essentially never just jump in anything without entry triggers, and for a fade the setup premise preferably a fade setup.
Let's move ahead and see what happened from here.

Chart 4
It was just unreal action, and the Russell took a big dive, really hitting the toboggan slide. Just when it looked like it might have sold out they gapped it down hard the next day, and kept selling. Was there ever going to be a bottom on this one? Notice, too the patterns all the way down for add-ons, reentries, and so on. The action was just spectacular, in my opinion. It was the topic of the forum, that's for sure.
Let's go back to the 60-minute and see where this action fits in that 'context'.

Chart 5
You're kidding me, right, Jim? No, I kid you not. Notice the last bar, and how it closed strongly. By this time the bounce, essentially dead off the line, had started already. It's not really going to head right for that line and then bounce, is it? You saw my arrow on the chart of the week last week, right? You did the work, right? You had this line, right? Please tell me you did the work so you could watch this 'real-time'.
I'll add a set on right out of Kane Trading on: Median Line and Fibonacci Synergy, and we'll move forward to the current price action.

Chart 6
The second arrow shows where I was watching last weekend, and the area where it bounced just over fifteen points in a beautiful 5 wave structure. The third arrow shows where I was watching next. You've seen me post enough charts in advance to know I don't create these 'after-the-fact', but well in advance The Russell went right to that line, rolled right over, sold right back to the bigger lower parallel, bounced up, and sold back to the line, forming a pattern. This may be a small 'wave 1 and 2' (see this week's chart of the week), but if it doesn't hold, well, you can assess what that means. I'm still pondering the chance for a nice pommelling once the year end phony mark up is done.
I'll finish with a chart on that 10-year. I could easily have done this week's commentary on rates, as they are just incredible right now, but all I have room for is a quick look.

Chart 7
Here's the same set we looked at recently. The arrows were from our recent work in here. Notice how the 10-year went right back to that lower parallel, and then up to the upper parallel at a key .382 retracement, and sold off after some very nice entry triggers. Patterns, lines, fibs, 'context', entry triggers, it was just all there. Look at the 10-year index chart we have been watching, on the daily and weekly timeframes. It's still moving up off the area I showed (in advance) on the chart of the week awhile back. I am watching the overhead areas of interest on this one very closely, since it is so crucial.
As I wrap up I hope this was a good example today for everyone. There is no way I can do more than this from an educational standpoint. If I explained ahead of time in full detail every aspect of my process here it would be unlikely anyone would learn anything. All you would get good at is hoping someone will tell you what to do and when to do it. My only interest is in trying to make a contribution to people's journey to become independent traders, thinking and functioning on their own, making their own decisions. I want to provide a resource they can study and see if anything in that resource pool is of any use to them. Maybe some is, maybe not. At least it's there to study and then you can use what you want.
As I close, I was thinking some people might be saying 'Geez, Jim, you even write on Christmas, and next week, on New Year's? Don't you ever stop and take a break, and be with your family?' My first thought is no, I'd actually rather be working my charts than going to a party. I was thinking that if Monday has to be a day without market, at least I can use that time (you know, Christmas Day) to get caught up on some things, and get all my charts cleaned up. And then it hit me. I'm the same old Jim.
With my recent loss I realized I will never be able to do all those things with that person that I had been planning to, and kept putting off and putting off. I always thought there would be time. I thought I had more time. I didn't. Now the chance for that is gone forever. But all is not lost, since I made the decision to not make the same mistake going forward. Yet I'd rather work my charts on Christmas, and my better half has been calling me on and off for two hours now to do something I had promised her we would do, and I keep yelling 'Soon, just let me finish the commentary'. But shortly we have to leave to go somewhere, and the time to do what we were going to do will be gone. Same old Jim.
I wanted to relate this not only for the obvious message here, but also because I got to relating this to my mentoring students, or my potential mentoring students. I started to notice that I had only like one in ten people sign up that were what I would call '100% sure' students. These are deadly serious, high-caliber people who I was certain would sign up any day. And they never did. I also noticed the reason was the same with all of them. They were working on their transition from a high-paying, high-powered job, working a hundred hours a week, to full-time trading. They all said the same thing: 'As soon as this or that project ends I'll be freed up, back to just sixty hours a week, and then I can do the mentorship.'
Want to guess the rest? I would follow up at the prescribed date when the project would end, and I would get the same exact cloned response from every one of them: 'As soon as that was done the boss dropped a much, much bigger project on me that will last at least a year. Just when I thought I'd have some time, I have to up it to one hundred and twenty hours a week now... But I can't pass up the money.' If you are thinking they are all just saying that to be polite, and that they really had just changed their minds on the mentoring, that's not it. They e-mail me back, and discuss setting it up once more, and then the same thing again. Over and over, person after person. Now, the point, since Jim always has a point?
The people that are serious enough to mentor with me and have decided, long before they found me, that they want to transition to full-time trading, are generally super-high-achieving type A personalities, where sixty hours a week is a vacation week. They are 'in deep' and really can't get out. As soon as they try, they get pulled right back in. They want to transition, a lot to just try to have more time, but the system, the job, has them. How much time do you think they have for their families? Are they there when their kids do all those significant things they do as they grow? This is messed up. Maybe we can't change how we are, but at least I can be aware of it, and try to make you aware of it. I thought I had more time, but I didn't. I'm going now to be with my family...
The next commentary will be next weekend's edition, posted by Sunday evening, December 31, 2006.
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