Book: Kane Trading on: A Totally New 5-Point Pattern
February 20, 2005 Commentary (weekend edition)-
This week sure was a good one for the type of things I look for. For my 'Trading Plan' it was filled with potential opportunities. I have really been spending a lot of time outside the intraday e-mini trading arena. Although this is still perhaps my favorite place to trade, I've just been looking at only the very best setups there, with as much emphasis on a little bit higher timeframes as I can. With the ES frequently trading in a three, four, or five point range for most of the time, I wanted to make some decisions.
I can raise my timeframe from my preferred 3-minute to a bit higher. I can also lower it to a timeframe that gives me plenty of much smaller opportunities, point-wise. Lastly, I can stay with what I usually do and be a lot more selective. I had been moving in the direction of lower timeframes and smaller amounts on the trades. I find nothing wrong with that except that commissions and the spread are just much more of a factor on a percentage basis.
I decided to just stay with my usual timeframe and 'cherry-pick' the best setups. Unless the trading action is really looking good, I'm mostly not going to look for or take setups right now down on the 1-minute timeframe. The main reason I decided this, for the time being, is that I want the time I'm freeing up to really keep flowing with my work looking for setups in stocks, EFT's, commodities, and FX. This is the area I use for the members' service, and the area that I am really doing a lot with right now.
I was always keeping an eye on these other areas, especially FX, but not anything like I am now. The break is doing me good, and I'm really seeing some incredible things. I am still fully watching the minis, I'm just not borderline 'scalping' them. I'm looking for good setups on the 3 or 5-minute charts, with 'context' up higher. If I don't have that, I'm working on the other areas.
I know it may seem like I don't talk about anything anymore except the subscription service, and I don't want to turn this forum into an ad for that, but there is a reason I am getting like that. As you all know, I've finished the book series. I've put together what I was asked for as far as other products. At this point I'm 'retired' from the chat room. I sit around all day and find all these setups and things that I find incredibly cool, and I have no one to share it with.
I'm developing some new patterns and setups, but I'm not likely to write up too much more. I share them with my few mentor students, but otherwise I don't discuss them. Now I have the members' section. Here I have a core group of serious as a heart attack students and traders who understand what I am doing, and want to follow along and learn more. They want to see what my latest and most current thoughts are, in a much more timely fashion. I now have a great venue to post something I think is awesome, as soon as I see it. That's where I am at right now. It's been a logical progression, and at this time that's where my focus is.
I'm doing a lot more myself in terms of stocks, commodities, and FX to complement the minis. I have more 'free time' because I'm not focusing intensely on every tick of the minis every day, and trying to post almost everything I do live as I do it. I'm also done with 'product development'. I'm not saying all this to promote the service. I'm saying it to explain that it's hard for me to talk about anything without referring to the service, since that's where I 'hang out' now for the most part. I scour everything I can look at and post what I think helps show my techniques best.
Given the large time commitment that takes, I will likely choose my examples for this commentary from there. This is a good thing for the readers here, as most of what's in there is pretty good in my opinion. I can look through the last week's material and choose something that I think is good for this column. But I'm not going to be careful and not mention the service and so on. I'll try not to overdo it, but I hope it makes sense that I will be discussing it and referencing it.
Lastly, before we start with some charts, very shortly I am going to change the free shipping in the continental U.S. for a full book set purchase special to a two week trial of the service with a book set purchase. As I said, I am not planning on doing regular free trials to the service for the reasons I explained in an FAQ, but I do think it is reasonable to let serious clients take a look at the service and see what they think. The feedback I get also helps me to see what helps the readers the most. Look for that update in the next week. I will post a note on the What's New page when I get that done.
Moving on, KLAC has been showing a lot of strength lately, as has the SOX (at least when they are ramping it), and it has been very tradable in my opinion. I know of one guy who almost exclusively specializes just in short-term trading of KLAC. I saw KLAC set a nominal new high and pull back and form a great looking setup. I put two groupings on the chart. I'll also highlight the pattern.

Chart 1
KLAC formed an ABCD pattern with harmonics hitting all over the place. I put the B and C point retracements on the chart to show just how it was behaving. With the B point at a .618, that pointed to a possible Gartley pattern, completing at a .786. That would be the upper grouping, with the .786 hidden exactly under an expansion number at the top of the grouping.
Although I weigh the areas of the groupings, the harmonicity, the price behavior, as well as additional factors (median lines and key trendlines), more heavily than the pattern layout itself, I did want to be ready at the upper grouping that lines up with the Gartley setup. I wanted a bit more in here, and I noticed something I frequently do, so I'll add that next.

Chart 2
I created a trendline from the upper two swing-highs and cloned it, and set it to that previous key swing-low. It fell right in the area I was watching, especially near the upper, Gartley grouping. Let's see what happened.

Chart 3
KLAC came right off the upper grouping, turning within less than one cent of that .786 retracement. I suggest the ready look this over on a 1-minute chart to see the detail of the price action in this area. And it wasn't over for KLAC after that first thrust up. Take a look at what set up next. I'll show this on the 1-minute chart, to get the detail.

Chart 4
KLAC is just magnificent, as is the study, for me, of harmonics in the 'context' of my methodology. KLAC formed an ABCD pullback (the arrow points to the area of the first play), with a variation of an ABCD in the BC leg (this new variation is being taught to current mentor students, but I have not published or discussed it elsewhere).
So many numbers came together it was almost hard to believe. I suggest the reader recreate this example and study what was going on. KLAC came right off the area and made another big move that was a great trading opportunity for me. It should be quite clear just how many setups form using my methodology. In my humble opinion, the techniques I use do seem to point out many areas where things tend to happen.
As I close I wanted to point out another interesting thing that happened to me this week. I do have a lot of very cool things come my way on a somewhat regular basis. I was contacted by one of the largest FX places in the country wanting to know if I'd like to become an introducing broker. People would then open up FX accounts with me, just like any other place. Perhaps Kane Trading FX? I sure do get a lot of potentially life-changing opportunities on a pretty regular basis, don't I? Just thought I'd mention that one, like I've mentioned some of the more interesting ones in the past that have come to me.
The next commentary will be next weekend's edition, posted by Sunday, February 27.
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