Book: Kane Trading on: A Totally New 5-Point Pattern
March 13, 2005 Commentary (weekend edition)-
I am posting this a little early because, as I mentioned, I'll be mentoring a student this entire weekend. I wanted to get this up ahead of time if it was at all possible.
The trading this past week has been just incredible. This is becoming something I am saying almost every weekend in here. We may be out of the range type trading in the indices that we have seen for the past year. There just seems to be action and setups everywhere for me, on all timeframes. The most frustrating thing for me with the members' service is deciding what small percentage of what I am seeing to select out for posting. These are truly great times for traders, in my opinion.
Today I am going to show a nice setup that came together for me in BRCD last week, and is still going strong. Let's look at a chart of the setup, on the 130-minute timeframe.

Chart 1
The traded timeframe was actually the daily, but I'm using the 130-minute here for clarity. I have a potential 5-point pattern, but my focus was really on the ABCD aspect. Notice two very key things. I used a modified Schiff median line set, but I can't do those with the software I use for these charts. I can duplicate the results by using another technique, though, which is a technique I use regularly. I drew a trendline across two swing-lows, the A and C points, and cloned it and keyed it off the B point. I then did a 1.0 time projection. They hit at the same spot. Let's see what happened from here.

Chart 2
BRCD hit the exact spot and started to drop, giving me an excellent trigger. There was a small 5-point pattern/ABCD 'retest' on the 15-minute timeframe, and then this larger pattern came in for another 'retest'. I had options to scale out of some as this started to form, ride it out, or even add once the pattern completed and triggered. The methods I use are clearly laid out in Kane Trading on: Trade Management. Let's finish by seeing what happened from this point.

Chart 3
BRCD is still dropping, and this one has been a fantastic play so far. Regardless of what happens now (barring an upwards market shock event with BRCD) this play is in a no-lose situation. The strategy is to let a part of this run now, with the stop moved down quite a bit. Notice the pattern that is now forming. What's the 'context'? What was my original 'context' saying? What may I be thinking?
Take a look at the Telecom sector, too, as BRCD tends to follow that. (In fact, BRCD just led the index and tipped me off to some plays in that. See if you can see the pattern in there that I recently nailed.) They don't all work out this nicely, of course, but this is what I'm trying to put together when I work on a setup.
The next commentary will be next weekend's edition, posted by Sunday March 20, 2005.
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