Kane Trading - Education for Serious Traders

					January 29, 2004 Commentary- Today I am going to point out a setup that I'm looking at in the bonds. I'll use the electronic contract for my charts, the ZB. I'll start by showing the groupings I have built on the 60-minute timeframe. Notice that I have two very distinct, very tight groupings in close proximity. I have also highlighted an ABCD pattern that completes as part of the groupings calculations. There is also another pattern in here that I have been working on, but it is not ready for release yet. When it is, you'll be the first to know. What really caught my eye on this potential trade were the regression channel lines. I'll add those and we can see what they tell us. The ZB has been bouncing off a regression channel bottom line for some time. Sometimes it exceeds it a bit, as you can see with that last meeting, but so far it's been remarkable in pointing to areas of interest. The line is now right in the area of the two groupings. Let's look at a daily chart with just the regression channel on it, for perspective. If bonds are to continue up, this is one possible area where I would expect them to continue up from. The problem I see is that fundamentally I don't see bonds going up here. I don't trade fundamentals per se, but when there are major shifts in policy I feel it's wise to weigh fundamental factors into the mix. What that amounts to for my trading is that although I'm still going to look at a trade off these groupings, I'm particularly interested in a failed pattern/groupings trade here. If the bonds don't reverse here, I'm thinking the fundamentals may hold sway for a while. In other words, the big players are acting on what the fundamentals imply. I don't trade what I think will happen based on fundamentals, reports, or news; I trade the reaction to the event. If these groupings go, that's a reaction I want to take into account in my trading. I'll finish with the action in the ZB on a 15-minute chart, close up. The ZB is very indecisive off that first grouping. I have no entry triggered at all yet, and I'm just watching closely to see what type of price action unfolds in here. I'll finish with an update on the three plays that we have been tracking. I really didn't like the market action this AM, and decided to close out all the plays. The FDX was a small profit overall, the VTSS was a home run, and the PDLI was just about a scratch. I don't like to close long plays when the market is close to 'support', but it just started feeling like the downside risk was getting greater to me than the further upside potential. I'm on to other trades, and if the market rallies from here and takes my closed plays straight up, I won't give that a second thought. I made my best decision, based on the evidence at hand. And you're hearing it before I know if, without the use of hindsight, it was the ultimate 'best' choice.


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