Monday, September 12, 2011

Fade the Breakout +400 ticks; Gold, Crude Oil, Russell and Euro Futures










Monday morning, get myself in the right frame of mind first.
My job today is very simple, find those highpercentage trades.
3 ways use can use news:

·       Beginner :  know when the news is, avoid the news altogether.

·       Experienced Trader:  read the reaction to the news

·       Professional Trader:  bias going into the news, trying to predict

Looking at the news this morning..

No major news, and it’s a Monday of Quadruple Witching.

Monday morning with no news we need to be very patient, looking for consistent speed and market personality.

We often see the Golden Lunch late on Monday mornings so this gives us another reason to be patient.

Let’s not dig ourselves any holes too early b/c the best price action will come later this morning.

800am est

 Crude Oil futures we begin first with the slower 89range chart.

We have a very narrow price wedge, with a sideways range and we are in the middle of that range slopping around the BMT.

This tells us right away we need to be patient for price to make new highs or new lows, just get us outta here!

34range chart on crude oil shows us three price structures:

·       Bear Price Channel

·       Price Wedge

·       Outside Day / Inside Day (transitioning)

Our plan of attack will be the following:

Price Channels are very easy to trade using the directional bias of the channel.

Bull channel has higher highs and higher lows and you will buy pullbacks with new highs.  Buy at support when price falls.

Remember, trying to buy the highs of a bull channel will always be difficult, especially if the market is slower, or low volume.

Bear Channel has lower highs and lower lows, and we want to sell retracements with new lowers, and sell at resistance when price rises.

Remember, trying to sell the lows of a bear channel will always be difficult, especially if the market is slower, or low volume.

The key to trading breakouts on a channel is to wait for the support below or the resistance overhead to be broken, and then look to buy a pullback with new higher highs and/or sell a retracements with new lower lows.

I use the ‘Trend Channel Drawing Tool for NinjaTrader 7’ to perform this task easily, and I provide all of this to members.

Price Wedge tells us a very specific market personality.

Lower highs and higher lows is called ‘consolidation’ and that occurs when the market participants are searching for clues for future direction.

In other words, a wedge pattern tells us the traders don’t see value higher or lower, so they are waiting for news, something to spark the next move.

We trade a wedge the same way we trade an inside day or a sideways range, sell the highs, buy the lows, and avoid the middle.

At some point there will be a potential breakout of the wedge.

We expect fake-out breakouts at the highs and the lows of the wedge, until we break above resistance overhead or support below the wedge.

I’m buying pullbacks when we break through overhead resistance and selling retracements when we break support below.

Outside day (above PHOD) tells us that the opinion of value from one day’s trading range to the next has changed for some reason.  As day traders we usually do not know why this has happened, all we know is the REACTION to this change is that buyers and sellers see value either higher (above PHOD) or lower (below the PLOD) and therefore price breaks the previous day’s trading range higher or lower.

Outside day tells me to look for breakouts.  The personality of the market has been searching for new highs or new lows, so let’s trade along with the personality.

Looking to buy pullbacks with new higher highs, and sell retracements with new lower lows.  We don’t buy the highs, or sell the lows, and we wait for momentum to confirm along with our other entry rules, but outside days tell us to expect the breakouts.

When an Inside Day turns Outside, or an outside day FAILS and then turns back inside...this a VERY big clue for the future direction of price.

If we see price above the PHOD that means the buyers are in control.  If those buyers lose control and the sellers can bring it back below the PHOD (turning it inside day) then we know the sellers are now in charge and price will fall quickly below the PHOD.

If we see price below the PLOD that means the sellers are in charge, and then if the buyers can pull price back above the PLOD (making it inside day) then the buyers are in control and price should rise above the PLOD quickly.

I am always watching closely as price moves from Inside Day to Outside Day, and I am almost always looking for a trade when that happens.

Our plan of attack on crude oil:

While we are inside Friday’s trading range we buy the lows and sell the highs of that range.

As price rises we are selling, and as price falls we are buying with an inside day.

As price falls I’m buying at support first, buying the PLOD from Friday 85.58, buying the lows of the wedge 85.00.

If we break news lows below 85.00 we will look for the fake-out breakout first because of the personality of a wedge.

If sellers are in control we then sell retracements below 85.00 down to 84.17 the next level of support.

Buying 84.17-84.00 as major support.

I want to avoid the OPEN and the middle of the narrow range around 86.00

As price rises im selling at resistance overhead at the highs of the wedge, the channel, and the highs of the ranges.

Selling 86.40, 86.61, 87.00, 87.44, 87.58 (major), 87.75, up to 89.50 the next major resistance level.

Sell wedge highs of 88.71-89.00 and also remember the PHOD is at 89.36 so look to sell those highs of the range.

835am est

Gold Futures are in a similar price structure today.

845am est

We have a price wedge, sideways range, and in the middle of these ranges at the BMT on the 89range chart of Gold.

This looks like a very concerning market personality and price structure.

34range chart on gold shows us three price structures:

·       Inside day

·       Price Wedge

·       Sideways Range

All three of these price structures say the same things!

As price rises im selling at resistance levels, such as wedge highs, major resistance in blue boxes, 1851.5, 1852.4, 1858.8, 60.8, 63.7, 65.2, 70.5, etc.  sell the resistance overhead.

We are expecting fake-out breakouts once we make new highs, so look for those first.

Avoid the middle of the wedge, avoid the OPEN 1850. And the BMTs at 1846.9.

As price falls I’m buying at support, buying the wedge lows, the PLOD, and the range lows.

Buying at 1837.3, 33.4, 30.0, 28.8, 25.5, 24.1, etc.

935am est

Russell Futures are showing us three price structures:

·       Bear channel

·       Price Wedge

·       Inside day

As price rises im selling at resistance using the bear channel and inside day as my guide.

Selling 666.5, 72.8, 75.7 is major resistance, and use 78.5 as a great final target, but not as a location to enter b/c of the BMT at 678.5.

If price falls im avoiding the OPEN around 65.0 area.

Im selling retracements with new lower lows using the bear price channel.

I also need to be aware of the major support at 653.3 so selling as we make new lower lows, however, I will not sell into the lows of the price wedge around 53.3

If we break below 53.3 I’m first looking for the fake-out breakout using the price wedge.

Then if we see sellers are REALLY in charge, start selling retracements with new lower lows down to 643.7 or the bear channel lows.  Both will be targets for your short trades.
1005am est

Sell < .40 on crude, selling major resistance

1035am est

This is the time when markets slow down for a little bit while the big money digests any news we saw this morning, anything from the white house, ECB, etc.

Crude Oil is trading at the highs of the price wedge and we want to sell these highs.

If price rises im selling at resistance first, and then looking for the pullback, however, beware the breakouts have been failing all morning.

We need to see a dramatic change in market personality if we are going to trade breakouts.

We can see a line in the sand around 87.58.  if we are above it, buyers appear to be in charge, and below we then look to sell these highs.

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