Fat Finger Gold: chaos to pattern.

The market is often chaotic and gold is more chaotic than most markets.  But in the midst of chaos, sometimes the clearest patterns emerge and during those brief moments -- that often last less than an hour -- one can safely enter and exit.

 Gold created the most obvious of patterns after the steep morning dive.  I missed it.  But guess what, it's the same pattern I look for every day. 

 /tf and /cl were mostly sloppy and didn't provide the opportunities or patterns I was looking for.

 But here is the perfect 3 bump symmetry that almost always guarantees a nice trade.

Multiple Signals Add Up to Superior Entries

/tf bottoms before massive 120 tick move

Once again, /tf provided a huge set up at 10:18.

How would you get in?

the markets were gapping up overnight but as the market opened RTH,   /tf started selling off sharply -- the speed of the correction was surprising -- there were quite a few strong names working well... with EXPE and AMZN blasting off, gold strong, and of course, it's a Friday near end of month... lots of reasons to suspect we might bounce.

 But traders should not think or predict.

What we knew at the time was that /tf had dropped to 809.20 around 3 am during the European session and bounced and the /tf was fast approaching that level.

 /tf hit 809.40  -- and then two important developments occurred.

 At 10:16  there was massive volume on the 1 min candle.  This usually signals capitulation and often occurs before a trend change.

 At 10:18 it was possible to draw a trendline support line  with 4 touches.

 10:19 - the  trendline down from the open breaks... a poor entry at 812 with an 11 tick stop would have been fine -- although you'd only experience 2 ticks of heat and then a run for the heavens.

 1 contract would have returned possibly $1200 with you experiencing a drawdown of $20.

This is possible because:

1) you identified the previous area of support
2) you waited for a major signal (volume)
3) you established a 3 touch trendline
4) you entered on strength (break of downtrend)
5) you had looked at context (there were several bullish indicators to suggest the market would not be selling off;  gold, AMZN, EXPE, nat gas)

I hope that helps.

Focus on the Strong: and stop thinking

I didn't take these trades but I can still learn from them.

What I did notice this morning: the markets were looking weak (even though they went on to rage all day).

 But in the morning -- it wasn't clear.  /tf went red until the open... but gold?  Gold was already pumped and ready to go.

 I fear gold because gold is usually very volatile and unpredictable... but meanwhile -- it was trending very smoothly and easily in the morning and provided two clear 3 bump patterns -- and even a 3-bump descending pattern to short in between, before raging out of control and spending the rest of the afternoon kind of bumping around wildly.

 The key to success is to limit your trading to the patterns you know and understand best.  Instead, I watched /tf all day and I tried a short that did not work and it never really gave me a clear signal and then of course... it tanked wildly after hours.

 But the point of course, with futures -- if you find your pattern -- you should be in and out in a matter of just an hour or less.  The best times of day, I've found are the morning -- and the last hour.  By 11 am -- it's usually a slog and if you missed it, you missed it.

 I need to be willing to trade any market if it's acting well and setting up.   The key tip off, as I mentioned, is that gold was acting well early on and that should have attracted anyone's attention.

 The thing is - I feel - the market switches between total chaos (ripping wildly hitting stops) and setting up for a clear move (probably due to big money loading up).  So you wait and wait until you see it.

 In contrast - /cl was wild and jumpy today -- ripping very fast and I wisely avoided it although I was very close to entering what I thought was a top (it was).  I didn't enter and I would have been stopped out before it did drop.  So I was right in my thinking, and therefore wrong not to enter, but right because my stop would have been too tight which was the wrong thing to do.  Follow? :)

 Anyways - study the /gc chart.   Gold is usually the poster child of unpredictability but for a few hours - it was clear as a bell.

Lesson learned:  When there's a clear market showing strength -- let that be the market to study carefully, especially if it's setting up nicely and showing patterns you recognize.

multiple timeframes help find support/resistance points

Well, I have something new to say but really -- nothing new at all.   Symmetrical triple bounces often precede sharp moves and you can enter and take a big bite with no heat.

 What I can add today is a slightly new perspective -- by showing /tf on two timeframes, hourly and 1-min candles.

 The /tf spiked hard on the AAPL report but no matter what you feel or think, resistance is resistance and if you were patient... the pattern emerged.

  Had you taken this pattern you would have:

1) experienced no heat -- none
2) made anywhere from 35 to 45 ticks -- assuming you exited at the lows (the small double bottom was a nice clue to exit)
3) been done in less than 15 minutes.

Interestingly -- it was a strong up day... but this pattern emerges and often provides a great trade even if the market is going the wrong way.  This is unusual but a big gap up likes to try to fill. 

The key here is:  Know your market you're trading and know the areas where resistance and support is.  If you're not sure -- always go out to a wider timeframe.  The market often thinks big and if you're only looking at 1-min candles.... you might overlook an obvious top.

 Hope that helps.

Same Pattern, Different Day

Trading is boring.  Or rather, good trading is boring.  Here's the same pattern -- triple top formation after a major resistance level is breached. /cl topped 104 and then began to wiggle into a triple top - and then even confirmed with a mini triple top.   One could almost guarantee at least 50 ticks with no heat and perhaps up to 70t depending on where you entered.

 There was also a triple bottom in PCLN right before it ran 5 points.  (You could have entered after the breakout wedge and still got 5 points.)

  Also X was sloppy after earnings but eventually fell into a triple bottom and then ran 1.20

 Triple triple triple -- the formation occurs regularly at major turning points.  Your job is to know areas of major support and resistance before hand  since these pattern won't work in an unimportant area.

 Is your trading like this?  Mechanical and boring?  Or do you look for action?  Look for exciting names?

 I think -- for me -- the search for excitement is a huge problem and will lead to poor results.

 Find a key pattern -- the market is chaotic and then suddenly -- briefly -- it will fall into a pattern and allow you to enter.  Then it gets chaotic again.

   Be boring, be profitable. 

Habits:

One of the best books on trading I've read in a long time is not a book about trading.  It's called the Power of Habit -- currently a top-seller on Amazon.

 But what is trading but a series of habits...  Some CP traders (consistently profitable) do the same thing over and over and make money.  They tend to have certain key rules like - manage risk (don't take big losses) and then focus on their bread and butter trades.

 Think about your most recent losses.  Chances are (I'm going to guess 99%) - your last loss happened  because "you weren't following your own system".  You "didn't place a stop order"...   You "averaged down".  Or maybe you just had a bad streak and followed your system. 

 My last loss was completely off my plan.  I won't even go into it -- but it involved about 3 bad decisions... none of them remotely connected to any rules I've written down. 

 I do have a system that involves looking for symmetrical 3-bump patterns -- and entering on b/os -- entering in the direction of the trend... and setting a stop that is usually no more than 8 ticks away.  I even found a trade like that real-time -- which I bought in a paper account -- only to sell too early.  (nonetheless, the trade was right and profitable.) 

This is the trade -- /cl.

There was a similar pattern in XCO -- a stock I've been following today - which then ripped almost 10% from the same 3 bump pattern.  

I've heard of traders making the same mistakes -- after 10 or even 20 years of trading.

And I've done the same thing.  And why?  Why do we fall into the same bad habits?  Because the key to successful trading is to replace bad habits with good habits.  There is a tendency to take outlier trades -- those times are probably prompted by a moment of frustration, boredom, fear (we just missed a good trade)...  There's a tendency to fall into old habits.

The first thing to do to improve is to start monitoring one's habits.  What do we do that is helpful and gets us into the right mindframe?   When do we have a tendency to take a bad trade?  Or not place a stop.

 Chances are there are triggers for bad behavior and for many traders -- they are unaware of those triggers.  Awareness, however, is the first step.  Because any habit -- can be changed or modified to suit your needs.

 Good trading is doing the same thing over and over again.  So if you are doing something that you know is detrimental to your bottomline... stop and analyze what is triggering the bad behavior.  And then find an alternative solution (maybe walking away from the screen, or rereading your written down rules) - to avoid repeating the same negative actions.

 Your habits will dictate your success.  Perhaps some people are just better at self-discipline and regulation.  But no matter what -- self-discipline is a skill that can be improved if one focuses on it.

Change your habits, change your life.  Let's face it -- we can all improve in some aspect of our lives.

good luck.

Automatic System:

There's a lot of information to absorb for new traders -- and the wrong information can lead to bad trades but simply too much information will lead to hesitation and then before you know it... you missed the better part of the day.

First thing I would look for in the morning: What are the Market Signals saying?

Was the European indices up?  Was there a catalyst?
How does XLF, XHB, and the big techs (AAPL) look?

Where is the market you're trading coming from (let's say /tf).  Today, /tf was recovering from an overnight dip.  Plenty of room to rally. 

Next: Before trading starts -- look at a higher timeframe.  Hourly candles reveal  809.3 was a previous top -- but through that -- there's no resistance until 815 when  /tf tanked on some China GDP news.

So the market opens and within 5 minutes - /tf pops and Market Signals are raging.

We can immediately assume it's going to be a trend day and we KNOW there's room to run before resistance hits.   So one can attempt an entry at the first pullback at  10 am - EST.  You wait for the bounce and enter late-ish at 804.  But Trend Days are very very forgiving.     This entry is good for 8 points (10 if you're perfect).

 It looked like this:


 Had you been very aggressive - one could have attemptted a short at 3:32 as the  Moving Avgs. crossed over and the final push fails.   (Note by this time there were a few signals to support a pullback:  1) the ominous gravestone doji back at 815ish,   2) euro was weak  3) oil was weak.  Either way - the stop on this short would not be more than 8 ticks.   (The downdraft that ensued was good for +70t),

So to sum up:

1) Market Signals provide clues of direction
2) Moving Averages keep you IN a trade for the entire move
3) Relative Strength of the Similar Markets keeps you in the right market. (i.e.: /tf was a better vehicle today than /es -- it was stronger off the bat and thus - had more bang for the Trend Day buck)

Keep it Simple.  You don't need to look at much else than the charts, your Market Direction Signals and check in with your own emotional/physical state. 

Less is more.   These Trend Days seem easy and they can provide big rewards -- but how many traders sold too early because they feared losing their profits?  You accept the charts and trade what they say.  Leave your emotions and opinions out of it - they have no place in trading decisions.

few good entries;

good entries look like this:

market trending fast -- breaks a major level - touches a key area like /tf 800  --- even #  

then small triple top --  long tails form -- and enter on break -- catch 100 ticks.

then:

/tf falls to last known support -- BREAKS -- and triple bottom forms -- enter here -- and you catch a big move.

Or:

middle of day  /tf is bouncing around with Market Signals mostly positive -- finally  a triple bottom forms - creating a firm support line -- and  enter for a rip back to 800.


At the extremes - we can attempt a triple pattern  -- assuming Market Signals are not overwhelmingly negative.

Midstream: We need to see triple bottom and the MAs get their ducks in a row. 

Otherwise: we wait. and wait and wait.

Trend Down Days

Trend Down days are easy -- if you catch them. 

If you trade smartly - your day would have been done at 10:30 am  and you'd have a bag of loot.  The /tf crept up to the point where it broke from the CHINA  gdp data - broke the TL - and that was your entry for a rollercoaster of fun. 

The key is using your market signals to take a shot.  $80 risk for over $1000 in downside today.

/tf

triple bottom formed - completed at 9:30 --

with Market Signals strong - first impulse was 60 ticks -- then seeing a Trend Day -- buying all b/o wedges/pullbacks -- would have been done by noon with 100 ticks or so.


 - NOTE Market Signal strength  --- trade in direction of trend.

 /cl  also rallied -- but turned into a great short -- triple top pattern that pulled back 90 ticks over hours with no heat.  

 There are excellent opportunities every day.   Keep looking for triples and you'll find them.

alterations:

triple tops sometimes come in slightly altered forms.

Today  /cl rallied and eventually topped out - but the classic triple top wasn't there.  Instead, the old classic Head/Shoulder top formed with the right shoulder also being a perfect backtest of the rising trendline that broke intraday.

 A big volume 1-min candle finally printed on a big down tick and that was clear confirmation the /cl would be giving back the rest of the day.

 Once again -- a triple pattern emerges.

One thing to look for when you can't see it yet -- draw the prevailing trendline.  The TL broke at 14:03 and the final top was in 14:22.  So the TL break gives you plenty of warning and cues you to watch for a valid pattern.

Note: If it isn't obvious:   triple patterns have SYMMETRY.  In this case, both shoulders are almost exactly 25 minutes away in time from the head.     shoulder - 25m - head - 25 m -- shoulder   -- and DROP.

 If the symmetry is not there - it's not the droid you're looking for.

how to enter oversold /cl

gap downs... and oil is broken...

So what complicated pattern do you need to insure a safe entry?  It must be difficult.

Or... 

Perhaps,

It's the same old pattern I've been talking about the past 2 weeks - -the triple bottom.  Once you see it -- after an oversold condition arises - you have an obvious entry with a clear stop that is usually no more than 10 ticks away from entry.    

 /cl has been moving 100 ticks or more for weeks -- I think I like this market better than /tf.

I did not trade this morning but eventually (not pictured in chart) the /cl got too far.  I waited until - -yup, a descending triple top formed and  it dropped about 25 ticks with about 3 ticks of heat into the close.  These patterns take time to resolve but they are worth the time and effort.

 There was also a triple bottom in /tf at 797ish that resolved middle of day for 70 ticks upside.

 So keep it simple.  Find a pattern/market that feels comfortable and trade it your way.

During a major trend down day -- Dow off 100.  You'd think it'd be impossible to get 30 ticks long on /tf with less than 3 ticks against you.  Waiting for the old triple bottom at support pattern -- it's possible.

Tues: FOMC

Today I was correct to try to short /cl - it dipped fast then recovered all of it -- and that was a good way to lose a lot of money - -eventually a triple top formed.  Oh -- the pattern -- over and over again it repeats -you merely have to find it.

Today I  put in fib lines and thought 50%  would retrace and indeed -- it went below and hit it -- 16 ticks further and climbed right back up.  So fibs is an interesting tool to add to the pattern -- to help with targets.

Today was clearly choppy from the start and /tf  whipped around and then spiked in the morning but this formed -- yes -- a triple top and that indeed was the high of the day.  So once again -- it was fast -- but these patterns are very good entries.  The rest of the day was a mess.

So 2 good charts to consider --

In general. My swing trades must be focused solely on strong stocks.  There is no other way to make money.  

Had the triple touch -- entry on ISM data --      always be thinking long, especially since we were way off the descending TL.  As it turns out -- Monday rager broke through and trended up all day.  This entry would have been good for 130 ticks upside with no heat.

 Everything depends on waiting for these triple touches at support or resistance.

 Impatience is my biggest problem.



In  /cl -- - trending up all day -- but note how it topped out -- after a TRIPLE TOP at our favorite key time  3:15 pm -- that was the end of the run.

 Major major rallies need to establish a top through pattern and time.