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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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It supersedes all my other intraday trading rules and setups1. On this two-minute chart of the mini-sized Dow, we get a black dot a little after 10:00 a.m. Eastern (see Fig. 10.3). This is a signal that the Boilinger Bands have narrowed and are now trading inside the Keltner Channels. I know when I get the next gray dot, I will have a trade signal. In this case, the gray dot happens right away. Usually there is more than one black dot, but once in a while it will just have the single instance, and that's okay. Common sense dictates that the more black dots there are, the more powerful the potential move would be. In my experience this is not true, as I have seen one-dot signals that have bigger moves than twenty-dot signals on numerous occasions, 1 find it is best to just take the signal when it comes. Humans tend to mess up their trading when they try to outthink their positions. When the next gray dot appears, the histogram is above zero, so I place an order to buy the VM at the market. I am filled at 10164.1 place a 20-point stop at 10144. My target is open, as I'll be waiting for the momentum index to falter as my exit signal. 2* The market pushes higher, and I'm watching the histogram. As long as it makes higher highs, I siay in the trade. When it makes its first lower high, I will get out. At 10:30 a.m. Eastern we gel a lower high on the histogram, and I exit at the market. I'm out at 10198 for a gain of +34 points. Mini-Sized DowSeptember 2004 Contract, June 28, 2004 1.On June 28,2004, the markets trade in a tight range all morning, creating a long series of black dots on the five-minute YM chart (see Fig. 10,4). Remember, the black dots indicate that during this timeframe, the Bollinger Bands are trading inside of the Keltner Channels, marking a period of very low volatility. A little after 1:30 p.m. Eastern, the first gray dot appears in the sequence. The histogram is below zero, so I take a short at the market. Tm filled at 10426. and I place a 20-point stop at 10442. 2,The goal is to stay in the trade as long as the histogram is making lower lows (or in the case of a long, higher highs). It makes its first higher low nearly two hours later, and I exit at the market. (If you were just watching the momentum index oscillator, you would exit as it starts to turn higher.) I'm out at 10325 for a gain of +101 points, or $505 per contract. A very smooth, low-stress, and profitable trade. This is a great example of a trade where it pays to sit on your hands until you are given a clear exit signal In fact, part of my reward system isn't focused on profitsit's focused on my ability to follow a setup from entry to exit. Every trader should have a rewatd system like this. Not for making money, but for hanging in there and following the setupslaying in the trade until you get a specific exit signal. Mini-Sized DowSeptember 2004 Contract, September 10, 2004 1. On September 10, 2004, the five-minute squeeze on the YM fires off (see Fig, 10.5). About an hour earlier ihere was a single gray dot, and I went long here. However, the very next dot went back to black. This means that the Bollinger Bands came out of the Keltner Channels, and then went right back in. This is a rare occurrence, but when it happens, I just get out and wait for a solid signal In that case I was in and out and lost six YM points. About 50 minutes later we get the setup again, and the dots tum gray. For this next trade, with the histogram above zero, I go long and place a 20-point stop. 1 am in at 10263, and J place a stop at 10243. 2* The histogram continues to move higher until 1:30 p.m. Eastern, at which point it starts to lose momentum. I cut the position loose at 10309 for a gain of +46 points. Mini-Sized DowSeptember 2004 Contract, July 1, 2004 1. A little after 10:00 a.m. Eastern on July 1, 2004* the first gray dot appears on the five-minute YM chart (see Fig. 10.6). The histogram is below zero, so I go short at the market. My entry is at 10402. 2. The markets drift down, and the histogram begins to level off. The markets continue to make lowers lows, and suddenly the selling accelerates, pushing the histograms down deep into their range. They begin to bottom out at around 11:20 a.m. Eastern, and [ cover at the market. I'm out at 10312 for a gain of +90 points. 1.On September 2. 2004, the five-minute YM chart goes into alert status at around 1:15 p.m Eastern (see Fig. 10.7). Six black dots appear, showing that the Bollinger Bands are trading inside the Keltner Channels. When the next gray dot appears at 1:50 p.m., the histogram is above zero, so I go long at the market. I am Filled at 10183. I place a 20-point stop at 10163. 2.The market cruises higher, and the histogram begins to start making lower lows at 3:30 p.m. Eastern. 1 exit at lite market and am out at 10278 for a gain of+95 points. Not every five-minute squeeze ends up with a big move like this, but I've found that when there is a big move, it is generally kicked off by a squeeze on the five-minute chart. 1 have a rule in trading that says, Never fight the direction of the five-minute squeeze! It supersedes all my other intraday trading rules and setups. Remember when 1 talked about all these plays working in conjunction with one another? If there is a five-minute- long squeeze in place and we are rallying up to a pivot level, then Tm not going to place a short at that pivot level. Never fighl the five-minute squeeze. Mini-Sized DowSeptember 2004 Contract, August 25, 2004 1. On August 25,2004, the five-minute squeeze goes into alert status at around 11:45 a.m. Eastern as evidenced by the first black dot (see Fig. 10.8). About 20 minutes later the dots change back to gray. The histogram was above zero, so I take a long at the market. 1 was filled at 10113 and I immediately place a stop at 10093 and leave my target as open. 2. About an hour and a half later the histogram starts to make lower highs, and I get out at the market, I'm out at 10149 for a gain of+36 points. Mini-Sized Dow^-September 2004 Contract, August 20, 2004 1. 1 like this example because it clearly shows the power of an intraday consolidation move (see Fig. 10.9). It's like a chart of the young wife's life played by Geena Davis in Thelma and Louise, There is the narrow consolidation of life energy for a while, and then Thelma busts out and nothing can hold her back. Her personality explodes, and she Finally experiences life. Just like the squeeze. The first gray dot appears just after 2:00 p.m. Eastern, and the histogram is above zero, so 1 go long at the market. I'm filled at 10172, and 1 place a 20-point stop. 2. The market pops higher, and a little under an hour later the momentum starts to slide-1 exit at 10221 for a gain of +49 points. Mini-Sized DowSeptember 2004 Contract, August 18, 2004 1. On August 18, 2004, the market spends most of the morning consolidating, and, as the volatility comes out of the market, the Bollinger Bands contract and start to trade inside the Keltner Channels (see Fig. 10.10). This shows up in the form of black dots. When 1 get the first gray dot, the histogram is above zero, and I go long at the market. I'm filled at 10003, and I immediately place a 20-point stop at 9983. 2. The markets push higher and start to lose momentum. 1 exit at 10034 for a gain of +31 points. 3. A few hours later we get a single black dot that is quickly followed by another gray dot. I take the signal. Since the histogram is above zero, 1 go long at the market, and Vm filled at 10056.1 place a 20-point stop. 4. The histogram is strong right into the close. I stay in the trade until 4:10 p.m. Eastern and exit at the market. I'm out at 10082 for a gain of +26 points. 1. On July 28, 2004, the YM creeps higher for most of the day, and then a little after 2:00 p.m. Eastern I get a black dot (see Fig. 10.11). Shortly thereafter we go back to gray, and since the histogram is above zero, 1 go long. I'm tilled at 10028, and 1 place a 20-point stop at 10008 and leave my target as open, 2. A little over an hour later the histogram makes a lower high. I exit at the market and I'm filled at 10103 for a gain of+75 points. 30 Year BondSeptember 2004 Contract, August 18, 2004 1. 1 love using the five-minute squeeze on the YM, but it works on other markets as well. Figure 10.12 is a chart of the 30-year bonds. At around 11:30 a.m. Eastern the dots turn black, signaling that we are entering into a period of very low volatility. About 90 minutes later we get a gray dot at point I, and since the histogram is above zero, I go long at the market. I'm filled at 111 9/32.1 place a seven-tick stop at 111 2/32. (If you aren't familiar with bonds, one tick is $31.25. So if you lose seven ticks, that equates to $218.75, or approximately 44 YM points,) 2. The momentum starts to peter out about 40 minutes later, and when the histogram makes a lower high at point 2,1 exit at the market. J'm out at 111 11/32 for a gain of +2 ticks. At one point I was up 10 ticks on the trade (the equivalent of 63 YM points), but the market rolled over quickly, which can happen. The key to successful trading is to stay in the signal until it ends. This way when a big move does take place, a trader will be able to stay in the trade and let the profits run, 30 Year BondSeptember 2004 Contract, August 10, 2004 1. On this five-minute chart of the bonds, we go into black dot territory at around 10:45 a.m. Eastern, and I sit back and wait for the next gray dot to appear (see Fig. 1CU3). This happens a little after 12 noon at point #1, and since the his togram is below zero, I short at the market. I'm filled at 110 30/32.1 place a stop at 111 5/32. Remember, one full point in the bonds is composed of 32 ticks. When it goes to 32/32, it becomes a new point. For example, when bonds are at 110 31/32 and they move up one tick to 110 32/32, this reads as 111, and so on, 2. The momentum to the downside builds and bonds sell off. Once the histogram makes a higher low at point 2,1 cover my short at the market, and I'm out at 110 26/32 for a gain of +4 ticks. 3.At around 1:30 p.m. Eastern we go back into black dot mode, and I prepare for my next trade. About 45 minutes later we get our first gray dot at point 3, and since the histogram is below zero, 1 short at the market. I'm in at 110 21/32.1 place a stop at 110 28/32. 4.Bonds sell off and move lower into the close. I cover at the first higher low at point 4, and I'm out at 110 16/32 for a gain of +5 ticks. The market rolls over again quickly thereafter and closes on its lows. 30 Year Bond^June 2003 Contract, April 30, 2003 1. On this daily chart of the bonds, we con see that these markets consolidated heavily for nearly a month during most of April 2003 (see Fig. 10.14). When the first gray dot appears after this consolidation at point #1,1 go long and am tilled at 113 13/32. Because this is a daily chart, I give the trade more room and use a 35-tick stop at 112 10/32. Bonds rally through the entire month of May, finally losing momentum in June. 2- Bonds get nearly as high as 122 before crashing on economic news at point 2, This kicks off a lower histogram reading, and 1 exit at the market at the end of that day, gelling out ai 119 31/32 for a gain of +6 18/32, or $6,562.50 per contract. This is the same as catching a 1,1,312-point move in the YM. 1.On this daily chart of the E-mini S&Ps the markets start to consolidate near the end of November 2004 (see Fig. 10.15). On December 1 we get a gray dot. The histogram is above zerot so I go long the next day. There is no magic on the entry formula. I wake up, look at the chart, and if it tells me to take action, I take action. 1 just get in at the market, very near the open, I'm in at 1062,50 (point 3), 1 place a 15-point stop at 1047.50. 2.The histograms peak out and start making lower lows during the first week in January. I get out on January 9 at 1129.50 (point 4) for a gain of+67 points, or $3,350 per contract. The market continues to move another 30 poirts higher. This is all about being positioned in the market when it's setting up to make a big move. Note, in the third week of December this contract expired so I closed out my postion in the December contract, and reopened it in the March 2004 contract, which was the next front month. I literally sold the December futures, then turned around and, because the signal was still valid, bought the March futures in order to stay in this play. This is called rolling over your position. 1. On this daily chart of the ES, we go into a period of consolidation at the end of June 2004 that lasts into the first few trading days of July (see Fig. 10.16). On July 8 we get a gray dot, and, since the histogram is below zero, I go short about 15 minutes after the open of the regular session. 1 am filled at 1118.25 (two bars to the right of point 3). 1 place a 15-point stop at 1133.25. 2. The markets move lower, and toward the end of July they start to run out of momen tum. At point 2, 1 exit near the open at 1092.25 for a gain of+26 points (point 4). Mini-Sized DowDecember 2003 Contract, December 1, 2003 1. We've looked at a lot of five-minute squeezes on the YM, so I want to look at a daily squeeze as well on this contract. At the end of November 2003 the daily YM went into black dot mode, and I awaited the next gray dot (see Fig. 10.17). We got it on December I, and, since the histogram was above zero, I went long shortly after the open and got filled at 9804.1 placed a stop at 9654, 150 points below. The YM rallied into early January and started losing momentum during the second week of the new year. I exited on January 9 soon after the open at 10506 for a gain of +702 points, or $3,510 per contract. 1. I like to use the squeeze on the various currency pairs in the forex markets as well. I normally like to use the 60-minute charts and 5-minute charts, but it also works on the daily charts. On August 23. 2004,1 woke up to see that the euro had just fired off a short squeeze on the 60-minute chart (see Fig. 10.18). I went in and shorted at the market, getting filled at 1.2252.1 place a 20-pip stop at 1.2272. (Remember, one pip in this currency pair equals 1/100 of a cent and equates to $ 10 on your P&L,) 2. The market sells off considerably, and the momentum on the histogram never lets up. I stay in the trade all day, exiting at 4:00 p.m. Eastern at point 2, when the U.S. stock markets close. The main reason I do this is that this started off as an intraday play, and I generally get out of the office after the stock markets close to go clear my head. I exit at the market and am filled at 1.2146 for a gain of 106 pips, or $l060 per contract. This is like making 212 points on theYM. 1. On this five-minute chart of the euro currency we go into black dot territory a little before 10:00 a.m. Eastern on September 8, 2004, and 25 minutes later we get our first gray dot at point I (see Fig. 10.19). The histogram is above zero, so I go long at the market, and I'm filled at 1.2054, I place a stop at 1.2034. Z. The market rallies steadily for the next 90 minutes and starts to lose momentum just before 12:00 noon, at point 2.1 exit at the market and am filled at 1.2153 for again of+ 119 pips. 1 I like to watch the squeeze on various stocks as well, especially on daily time frames since most of my stock trading involves swing trading. I also use the daily squeeze on individual stocks for in the money option plays. I talk more about now I play options in the chapter on the 8/21 EM A for Swings setup. That said, I will use the 5-minute squeeze on volatile stocks for potential intraday trading setups. On this five-minute chart of Google (GOOG) we can see the price action shortly after its IPO (Initial Public Offeringsee Fig, 10-20), On September 9, 2004, the stock went into a squeeze setup at the end of the day, and this carried into the beginning of the next day. Very soon after the open we get our first gray dot, and, since the histogram is above zero, I take a long at the market. I'm filled at 102.33, and I place a stop at 101.83. 2- The momentum builds quickly and begins to fade near 11:00 a.m. Eastern. 1 get out at 105.45 for a gain of +3.12. Another squeeze play sets up later in the afternoon and fires off right after 12 noon. On this play the histogram is negative, and I would normally short, but since it is an IPO, shares were not available to the general public to short at this time, so I obviously pass on this trade. |
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