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July 21,
2004 Commentary (mid-week edition)- Today I'm
going to talk about an interesting thought I had recently, and then get on to a
few charts. Before all that, though, I'd like to discuss an offer that Scott
Carney over at Harmonic Trader has made for my potential buyers. Scott has
graciously said that he would give a free two-week trial of his Harmonic Analyzer software to
anyone who buys one or more books from me in the next two weeks. This is
amazing software that scans for patterns. It can scan a huge number of issues
and list out the matches. The user can set the parameters of the search to suit
what they want to look for. Any result from the search can then be quickly
displayed on a chart, showing where all the numbers are. He has it set up to do
stocks, futures, and FOREX. He has been posting a lot of FX charts lately using
the software, and it has found some amazing patterns. You might
want to check this out if it sounds like something that can help save you time,
and find you potential trading opportunities. I think it is truly amazing
software. I haven't seen any other programs even remotely close to this one as
far as pattern matching algorithms. Understand, though, that this free trial
offer is between you and Scott. If you make a book purchase from me and want to
take advantage of this offer, let me know when you order and I'll simply
forward your name along to Scott. Any use of the software, and any transactions
that follow that use, would be between you and Scott. I won't be involved in
that at all. All I'm doing is just mentioning that Scott has offered this free
trial to my buyers. He wants to make sure that those who try the software are
at least serious about this type of trading methodology, and traders who buy my
books are likely candidates to have an interest in this type of
software. I also need to mention (I have such a pesky attorney, who makes me
do all sorts of things I don't like to do) that I can't make any guarantees for
someone else, in the sense that if you buy a book I am not making any
assertions about the free trial or anything of the sort. I don't anticipate any
problems or issues with that, but it must be made clear that all I am doing
here is pointing out that Scott has made this generous offer. What follows
after that is between you and him. If somehow you don't get the free trial (say
you have an archaic, stone-aged computer that it can't run on, or whatever else
that could come up), I make no claims that I will give you part of your money
back for the book purchase, or anything of that sort. Sorry to go on and on
about this, but Scott and I own separate companies, and although we do a lot of
work together I need it to be clear that I have no financial interest in the
Harmonic Analyzer, and I'm not the one making the offer. Okay, my attorney is
happy, Scott probably isn't (he's probably cursing me out right now and
wondering why he ever even made the offer!), and we can move on to some trading
ideas. I was thinking about timing in trading. Generally, I have an idea
about timing in my trades. I try to feel the rhythm of the market, and make
sure my trade setups make sense in this 'context' (yet one more way to look at
'context'). It's hard to describe in words what I mean here, but anyone reading
this who has paid their dues and has the 'screen time' knows exactly what I
mean. As I thought about various aspects of timing, I got to thinking
about a different kind of timing. This has come up for me lately because of my
greatly increased attention on the FX markets. I am spending a lot more time in
front of the screen than ever before. I now 'stay up late', and have even
flirted with shifting to some all-nighters if the action is good. I probably
won't do that, but I can see why it might be the best time for actual trading
action. Now, here's what I have noticed. My timeframe for FX trades is a
lot longer than for my mini trading. It's probably about half-way between the
'intraday swing trading' in the mini and some of the stock or futures 'swing'
trades that I post in here that last several days or slightly longer. So, it
usually plays out with me anticipating possible setups that may be forming, as
I try to do in this commentary with various issues. As a setup comes together,
I'm watching on the lower timeframe (the entry timeframe) for my entry
trigger. Here's the problem. This may happen anywhere over the course of
several hours, or it may happen at night when I'm asleep. Now, you might be
saying 'So what if it takes hours, just wait it out, you've got to pay your
dues.' True, but what if it falls apart after the two hours and doesn't
trigger? Then you wait again for the next setup and so on, until you get a
play. Well, I can't watch that long. I have to use the restroom, make lunch or
dinner, answer the door, and so on. I have found that when I do this I sometimes
miss a sudden move right to the area followed by an entry trigger. When I
thought I might have time, I found it was over when I got back. Sometimes I
wait for endless hours and I miss it. I just can't stay glued to the screen all
day and all night. I recall a setup where I waited from after dinner until
about midnight for it to come together, and I couldn't stay awake any longer,
having got up before the stock market opened at 6:30 AM my time. I finally
gave up and retired. I put an 'x' on the chart right where I quit. I checked
the next morning to find it set up and triggered exactly as hoped shortly after
I quit, and gave a whopping nice move. I wasn't in, though. My timing wasn't
there. I know what some traders are thinking, and that is to have used an order
to get me into the trade once it hit the area. If you have read all my books
you already know why I can't do that. I don't trade by 'fading' in once the
potential trade area is hit. I enter trades when my lower timeframe entry trigger
puts me in. And that doesn't happen at a certain number. It happens when
certain things come together. I have to be there to read that, and make my
evaluation. Sure, that's a disadvantage, but the advantages, as I've explained
in this commentary and in the books, clearly outweigh the disadvantages, for
me. I'm a discretionary trader, and I need to see how the market is
acting. So, I've discovered that I have to figure out ways to monitor
several FX pairs as efficiently as I can, to optimize my ability to be in place
when the setups trigger. I know what the main hours I want to be watching are,
but it's hard to time when I'm at the screen so I don't miss them. I can't
watch that many hours non-stop, and besides, I am trying to trade the mini and
other things, too. It's all about the timing. It's just that it's a different
kind of timing. Nonetheless, it's timing that can greatly add to, or reduce,
one's bottom line, and hence it is an area that I'm trying to improve
on. Let's move on to a couple of charts. I'm going to discuss what has
happened with gold since I originally pointed that one out, and what I was
watching there. I'll start with a 155-minute chart. I chose this timeframe
because I'm having some data problems with the daily and can't get a good chart
together at this time. My setup also won't let me do a chart for the full
number of minutes in a regular trading day, so I couldn't show that. Hence, I
arrived at the 155-minute, in an attempt to have an even number of minutes per
bar.
I was looking at a short play off the ABCD
pattern. The pattern symmetry looked really good to me, and it came within a
fraction of the 1.000 price projection. As you can see, gold has had a pretty
good response off that area. Now, was entry somewhat tricky? That depended on
the entry technique chosen, in my opinion. On the lower timeframes there were
entries. But what if you didn't get in? What else happened that really
jumped off the chart? Let's look at a 40-minute chart.
The arrow points to the area of the pattern
completion. Look at what set up after the initial drop. A 5-point pattern
formed, set up to 'test' the larger ABCD pattern completion point. I put the
.786 XA retracement, the 1.000 price projection, and the 1.128 BC external
retracement on the chart, to show the area that I was watching. This is a
fantastic looking pattern. There was adequate chance for entry using the techniques
I lay out. The response has been strong since then. I have no idea if this is
done now, or just getting started. I'm in the management phase, with trailing
stops and scaled exits in place. This is a quintessential example of the
process. I showed the potential pattern setup in advance, discussed what I
was looking for, all the while mentioning that the pattern may never complete,
or if it appears to, it may 'blow out' the potential trade area, and hence I'm
waiting for an entry trigger. You can see what has transpired since
then. The second pattern test was just a classic 'gift' for me. This
example really outlines how the process unfolds. And it should be noted that
it's hard to give the full level of detail of all that happens with such trades
in this short column, but the outline should be enough to grasp the general
ideas. As an aside, was today's ES/NQ action something, or what? The next
commentary will be the weekend edition, posted on Sunday .
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