Tutorials

We confirmed a bullish outlook for stocks with a close look at charts for the Industrial Average and the E-Mini S&P. We also looked at ways to force trades when the pickings are slim. Usually, this entails zooming down to a small enough time frame to find ABC patterns suitable for our purposes. Finally, we considered some specific reasons why the odds are heavily stacked against retail customers who would attempt to trade puts and calls. From a risk:reward standpoint, unless you’re capable of nailing swing highs and lows consistently, you’ll get a better bet at a $2 parimutuel window.

March Silver was in a moderate uptrend when we looked in on it, creating a subtle camouflage opportunity that looked too juicy to pass up. We initiated the trade – several students in the room later reported making money on it – for reasons that are made clear in this recording. The entry risk of $325 was five times what we would ordinarily have wagered on a single Silver contract, but you can judge for yourself whether this was the right call. Subsequently, Silver sank like a stone after taking a fleeting leap above the ‘p’ midpoint. This posed little problem, however, since we’d had a chance to take a partial profit at ‘p’ and a further 20 minutes to exit the rest of our position before the futures fell to our break-even price. And that is the beauty of camouflage – the ability to make money on a trade even when we are ‘wrong’.

Mr. Market provided us with an opportunity to short the E-Mini S&P using a ‘camouflage’ pattern on the one-minute bar chart. Although time ran out before we could profitably exit the third of four contracts initially sold, at the end of the hour the trade was just two ticks from a ‘D’ downside target worth $360 in theoretical gains. In addition, we would still be short a single contract with a chance to let our profits run. There is some detailed psychologizing in this lesson, since the futures took their sweet old time doing what we’d expected them to do.

If you need convincing that our proprietary "camouflage" tactics can very nearly eliminate the stress and dollar risk of trading such vehicles as Comex gold and silver contracts, this lesson is a must. Because bullion futures had triggered bull trades the previous night, we dissected the opportunities this had presented with great care. The effort paid off with some of the subtlest details we’ve uncovered to date in our ongoing effort to improve “camo” trading results.

Visually obscure subtleties are what we look for during these Wednesday sessions, since they are our most useful tool in identifying trading opportunities that will subject us to relatively little risk or stress. We found some excellent examples during this session while stalking possible trades in the E-Mini S&P and February Gold. We also got a chance to ponder a potentially tradable low in the QQQs just moments after we had “locked in” a nearly riskless vertical bear spread by shorting some January 51 puts against January 54 puts we had bought earlier.

Looking for actual trades in Comex Gold and the E-Mini S&Ps, we zoomed in on their lesser charts to find a low-risk entry spot. The results on view here provide a finely nuanced lesson in how to force a trade when conditions are not ideal. Incidentally, we used Tradestation’s drawing extension tool instead of a Hidden Pivot calculator, since it is proving to be most useful in adjusting buy- and sell-stop entries on-the-fly.

Bullion prices have been ratcheting lower in recent weeks, presumably bound for key midpoint supports that could conceivably fail. Although it's difficult to be disinterested in the outcome, we need to view the technical signs with coldly mechanical detachment. Indeed, our emotions will not serve us well in judging a market that has been going against us, as bullion has. With the foregoing in mind, and for better or worse, we took an especially close look at Comex Gold during this session.

We don’t often venture onto the tick chart, but we made an exception during this session to scrutinize a possible opportunity in December Gold. The opportunity was there, as it nearly always is in the micro time frame, but we learned yet again that the ability to execute the trade without even a moment of hesitation can be crucial. We also looked at a pattern that was tradable only because we paid close attention to the length of the B-C retracement. If your understanding of k-A segments and the “window rule” is fuzzy, this lesson may be helpful.

With the Dow off as much as 300 points on this particular morning, we nevertheless found a profitable trade against the trend in the E-Mini S&Ps. Our success entailed simply going with the flow, since the flow at the time we were looking for action was “up” on the very lesser charts that we typically use for camouflage. This session will be especially useful to index futures traders, since we rationalized each and every price squiggle up to and beyond the moment the trade was initiated. It was a “successful’ trade to the extent that it reached the ‘p’ midpoint where partial-profit taking was possible.