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February
6, 2005 Commentary (weekend edition)-
Well, that
was some kind of a week for trading, now wasn't it? If we could only get that
type of movement and action every week, I would be one happy guy. I am finding
(and have been finding) a lot of what I think are great setups, and we just had
a major confluence of setups at the time and place where the 'bounce' started.
That was not just a random area, in my opinion.
I'm starting to think that we may
be in a wave 5 here on the daily chart for this move off the August low, and
this may all be a larger wave 5 up from August on the weekly chart. As I said
in this week's popup quote of the week: "I don't try to predict the market, I
just look for setups." I point out the Elliot as something I watch, but I'm on
the hunt for setups, and that's what I trade.
Let's look at the SPX chart I laid
out two weeks
ago.


I thought the SPX might form a larger ABCD
pattern down to one of the lower areas I showed on this chart. At that time I
didn't see the possible Elliot count as clearly as I do now, or I might have
felt the median line parallel and upper grouping would likely produce a larger
reaction. I expected a bounce and then likely a rollover to the lower areas.
What bothered me was just how many long setups were forming all over the place.
I planned to go with the upward flow until such time as it stopped, and it just
didn't stop (which is fine with me).
I trade what I see happening, not what I
think might or could happen. I look for areas where I expect things to happen,
and I see how the price action behaves. If the price never gets to an area,
that's fine. I'm not thinking it will get there, I'm thinking I want to watch
if it gets there. You can see from the chart just how key that area I
highlighted was.
Let's look at that 15-minute DIA chart from two weeks ago, too.


I noted that the DIA was approaching that
lower trendline. It tracked that for a while, and then reacted strongly right
up to the upper trendline. It's amazing how lines like this can point out
general areas of interest. Combine that with structure and groupings and it
really shows me where to look. Let's see what happened next.


Now, is that line important for me to see?
Without the line it just looks like ranging behavior with a downward slope. Put
the line on, which comes from data from way back before this chart was
captured, and there is some sense to it. I feel a lot of things make sense if
you put the right things on the chart to give you the perspective.
Let's move on
to something I pointed out in the members' section. That has
been going great so far in my opinion. I have shown a lot of things in advance
or as they were developing, and many have played out as I was thinking they
might. My 'action areas' produced responses. Here's a 60-minute chart of the
SPY.


I pointed out the area of a bearish ABCD
pattern that hit right at a downtrend line and a median line parallel, as it
was happening. I showed three alternate groupings, using the techniques laid
out in Kane Trading: Trading ABCD
Patterns. I suspected this area may not hold, and I discussed this in
my commentary. The SPY went right to the area and bounced in between the
boundaries of the groupings.
This is not the type of reaction I would expect. My plan
was to wait for an entry to fade the setup (my use of 'fade' here means to do
the opposite) if an immediate and strong reaction down didn't ensue. Go to a
lower timeframe chart and look at the price action. I couldn't ask for more.
The move out of the area was fantastic, and the setup pointed me right to the
spot I wanted to watch.
As I have said many times, to the dismay of the
conventional pattern traders: "I don't trade patterns, I trade 'action spots'."
This was a clear action spot. That's why I would never just fade into a trade
like this (that is, take an entry without a clear, confirming entry signal). I'm not even sure
which way I am going to trade it yet. I look at the 'context', and I watch the
price action in the area. That guides me on what to do. All I know is it is an
area where I feel something is likely to happen. I can use my techniques to
guide me on my trade premise, based on what I see unfolding.
This is the
type of thing I show and discuss, many times in advance, with the subscribers. I'm able to
post at any time day or night, whenever I want, if I see something I want to
point out. I discuss my thoughts and observations, in the form of my now
familiar 'trader talk', with copious charts.
When I post something I send out an
e-mail to the subscribers so they know something has just been posted, and they
can go and check the update. I think it's a very interesting and useful forum,
if you like my style of teaching. I don't want to turn this free commentary
into a promotion page, but I want to make something clear.
If you want
much more detailed content, in a more timely manner, with a lot more material
posted in advance so it can be followed and studied as it unfolds, with me
commenting along the way, you really should check into getting a subscription.
It's one thing to read and study the books and quite another to 'watch' me
explain the techniques as I apply them in a much more timely fashion. It's the
next best thing to doing the mentorship, or as my past students
are showing me, a good ongoing learning venue.
One last item before I quit. Scott
Carney over at Harmonic
Trader will be doing a chat session this upcoming Thursday for eSignal.
He has a link on his page for that, so if you are interested you can follow up
from there and check it out. You know I'll be there.
Oh, and
speaking of eSignal, they contacted me and asked if I would do an article for
them, and I said I would. It will be a few months before it gets posted on
their website because of the normal lag time with the scheduling, but when it
appears I'll let you know in here and in the What's New section. I'm also
looking at getting some material up on a few other big websites, and I'll let
you know when that happens. The best material will still be right here,
though.
The next commentary will be next weekend's edition, posted by
Sunday evening, February 13.
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