May 2, 2012 6:11 PM
Test of Patience — Dragon/Double Bottom/ABC Bullish Trade in NQ
Today markets sold off from the overnight High of 2753 in Nasdaq futures to a low of 2702.5,
with 11 pt Gap Down. Usually when markets either Gap Up or Gap down big (>20 pts in NQ or
6 pts in ES), I make a note of it to trade only in the direction of the gap all day. In my view, unless
the Gap is filled (on the same day), market is NOT reversed. Hence, I monitor Gap Ranges
with Gap Fibs. tools very closely to understand the Market Dynamics.
From the open, NQ and ES attempted a weak rally to 2718 (10 pts) until 10am and sold
off again pretty quickly. Usually this is a good short-setup below the Open level. But I started to see
hesitation in the TickStrength (NQ) and started printing reversal bars from the bottom….
Even then I was quite skeptic if it is a double bottom pattern. It also fits into a Dragon Bullish
pattern. So, I connected the Top of the Head to the Hump Level to visualize the Dragon
setup. Around 10.40am, I have also seen CMI turning Green. Once price closed above 2710
(the Intersection of TL connecting Head and Hump levels), I have decided to enter a long,
kinda half-hearted. I am still biased on the short-side due to overnight
(Globex) down session. I figured Dragon/Double Bottom is pretty decent trade setup. Also,
ABC Bullish setup with Long trade above 2709. Long 2711 with Stop at 2702 (low of the two legs
in Double Bottom). Targets are kinda tricky in Dragon pattern. The best is to trade with trail stops.
I enter Trail Stops only after my 1st target is hit around 2720. Then I move my Stop to B/E of the
entire lot to protect my trade. In my view Dragon’s differ from the Double top and Double Bottom
trading in few aspects. I’ll attempt to write that topic in another blog post.
Here comes the patience part., Usually I struggle with it but today I was
quite determined to see my targets or my Stops get hit, if I am wrong. I would
be break-even after my first Target at 2720. My next targets are 2728 and 2738 (ABC Bullish Price Targets
100%, 127-162% AB setups). After taking 1/2 of position at 2720, I moved my stops to 2711 b/e. Then
I patiently waited for next 2728. Once price started to trade above my
first target: 2720 level, I moved my stop from B/E to 2nd stop level, just below
the Prev. Swing Low (2715). My second target 2727.5 was hit fairly quick for 16.5 points
profit. Now my struggle with Patience started as my price reversed and I was pretty much
ready to close trade on my last lot (3c). But I was pretty determined to wait either my
stop at 2715 or my next target 2738 is hit. From 1pm, next 2.30 hours was testing my
patience. Around 2.30pm, once price traded above my Second target level 2728, I moved
my stop to previous swing low (2718). Now NQ made another swing high and low. Around
3.45p, I realized Market may close without my target hit and I am comfortably
profitable in the trade. So, I placed an order to close at 2730.5 to net 19.5 points.
Sometimes Patience rewards you well, some times false belief coupled with patience
kills you. Today was a good ending 
April 16, 2012 4:04 PM
Second Chance Trades in ABC Bullish Pattern
Sometimes second chance trades from the same pattern are amazing.
When I get stopped out of my trades I continuously look for where the trade went
wrong and what I could learn from it. I document most of trades (specially losses) as
they are best teachers of the market. When pattern fails in the first pass but gives
another opportunity to trade, I usually never miss it. Today was such a case of
second chance opportunity in ABC Bullish Pattern trade.
This morning ES Sold off (compared to Dow went up showing divergence) from the
Open of 1375.5 (R1, Globex High Cluster) to 1360.5 (Globex Low and S1 Cluster).
Around 10.15am, it appeared ES made a low and started to trade inside the Fib. Bands.
This itself is NOT a signal as ES is trading in Volatile Zone and Volatility needs to
become normal for any trade-entry. ES traded above Mid Fib. Band and started to
retrace forming First ABC setup. I patiently waited until NOON for ABC Bullish
pattern to trigger. ES Volatility was still above RISKY levels. Around 12.02pm,
I have decided to trade Long ABC Bullish Pattern at the EL (1364.25) with a stop
at 1362.25. Around same time I also saw NQ was making an ABC Bullish pattern in
610 Tick charts. I thought they both should rally higher as VLTY becoming normal
and CMI is turning Green in 5m and 3m charts.
Pl. see charts in Chronological Order:
http://www.surinotes.com/index.cfm?pDate=20120416&CSEL=1001
12.20p: ABC Trade1 LOSS: After rallying almost 2 points form my entry, around 1220p, ES
traded back below my entry and pushed further to hit my STOPLOSS at 1362.25 (2 points)
loss. I was bit surprised as Market Internals were Green and VIX is trading within the
zone.
Next 20+ minutes I closely watched ABC pattern and its price-action to note the
pattern is acting well (uniformity) and Market Internals are still GREEN. ABC pattern has
expanded now making a low at 1361.75 (but not the ‘A’ Low 1360.75). I was
tempted to get back into the trade around 1361 but I waited for it to
trigger the EL (1364.25), same level as my First ABC Trade.
Around 1245pm, I am more confident of ABC moving up. CMI is green, VLTY Zones are
showing normal range. I knew second chance ABCs are great. I placed double size
contracts to go long at 1364.25. At 12.47pm, my trade was triggered and I have
12 Cars Long position. This time Stop Loss is set at 1361.75 (2.5 points). My
Targets are 1366.25, 1368.25, 1370.25. Wanted to recover my loss from first
trade at Target1.
1259p: My first Target was hit at 1366.25 +2 points (recovered loss on 6 Cars)
139p: Second Target was hit 1368.25 +4 points (3 Cars)
145p: Third Target was hit at 1370.25 +6 points (3 Cars)
I do like second chance Trades as they are the best trades, specially after a loss.
This rebuilds my faith and confidence in trading my 2nd Chance trading patterns.
April 6, 2012 1:39 AM
Dragon Patterns are similar to Double Bottom patterns. But Dragon Patterns have very specific rules and are usually low-risk setups.
This morning I noticed a Dragon pattern since I came to office. I resisted trading it until the market open. Being a holiday and weekend I was expecting to trade light or NOT trade at all but at the Open I have decided to trade Dragon with some caution. ES Dragon on 1220 Tick chart was very compelling and it is such a rare opportunity. At 9.31am I placed a trade as ES started to trade above the Hump level (1389). The reward could be as high as 1400-1402 targets with a stop between the lowest of the two legs in two steps of half each. Targets are 1392, 1396, 1398-1400. I also planned on trading exiting the trade if it does not work out by lunch time.
Around 9.50am, my first target was hit at 1392.5 giving me +3.5 points on 1/3rd of my trade position. Then I moved my stop to 1389 (b/e). About 11.05am, my second target was reached at 1396 adding +7 points on the 2/3rd of the trade. My next target is 1398-99 with stop moved to 1393-94. ES did reach 1397 and I kept waiting. After agonizing 1 hour 45 minutes at 12.45pm, ES hit my stop loss at 1393.5, adding 4.5 points to final lot.
I am glad I closed my trade as ES started to drift side-ways rest of the day and closed around 1392.
Dragon patterns usually form at market bottoms. Dragon patterns work in all time-frames and in all market instruments. Like most Double bottom patterns, Dragon patterns present excellent trading opportunities with low risk to reward ratios. The Dragon pattern is similar to the “W” pattern and the Inverse Dragon pattern is similar to the “M” pattern, albeit with different trading rules.
The Dragon pattern starts with a “Head” formation and price declines from the head level to form two legs of the Dragon. These two legs in a Dragon pattern usually form within 5% to 10% of the price difference. The second leg gives a strong indication of imminent reversal when it posts a key reversal bar or a divergence in any oscillator indicators. The price rise in the second leg is usually followed by a spike in the volume. A trend line is drawn connecting the head of the Dragon to the hump. When the price closes above the trend line and is also confirmed by price action or divergence in any oscillator, it signals a reversal. The second confirmation of a Dragon pattern occurs when the price closes above the hump, 38% to 50% of the range from the head to the low of the first leg.
Trade: Aggressive traders enter a long trade when the price closes above the trend line (see Figure 8). A better trade entry may be when the price closes above the hump level. Enter a long trade a few ticks above the hump level.
Target: Targets are usually at 127% of the second leg range and another target is set near the Head level.
Stop: Place a stop order below the lowest low of the two legs.
January 6, 2012 7:50 PM
CMI Description
Combined Market Internals Indicator shows a Combined Market Trend of Internals of $ADV, $DECL, $TICK, $TRIN, $ESINX, XLF, SPY in Real-Time. CMI shows underlying trend in a Histogram. CMI Ribbon shows the detail of internal trends.
Picking tops and bottoms is usually a losing proposition for most traders. I remember doing that with pride (false) of my ability to pick tops/bottoms early in my career. But markets quickly served me with reality and taught me great lessons right in the beginning of my career. Now I use wisdom when I analyze market tops/bottoms and remember my past experiences
Most wise analysts always say, Market Internals give a Top or Bottom signal far before any of the underlying trading instruments signals. Well, so how do we find which Market Internals and what are these signals?
I use CMI (Combined Market Internals) as my key Market Indicator. It uses 6 Market Breadth instruments and an arbitrage ($ESINX) to compute a complex Mathematical equation to derive a single Market Direction and plot it as a Histogram. I follow this CMI direction as a key resource for my pattern trading. I do not follow any other internals as I think the components I selected for CMI have a great significance in aiding me with finding the market direction.
I have studied CMI for about 4 years now and I think I have a pretty good understanding of how it works. It helps me in finding 1.) Underlying the Market Internals direction, 2. ) The Divergence between CMI and my trading instruments like ES, YM or NQ 3.) A Market Top and Bottom signal when it reaches extreme values in CMI.
Here I will discuss the third point, CMI extremes as signal for Market Tops/Bottoms. Remember my consideration for Market Top or Bottom is on a 5m CMI chart. It is not daily or 60m chart. I am trying to find a temporary Tops/Bottoms in SPX giving me 3-8 points profits during intraday. If I am in a position and I see CMI reached an exhaustion levels, then I take my profits out. Historically I have seldom came across CMI trading above +/- 200 levels. Not sure exactly how 200 level matters, but I noticed when markets start to trade above +/- 150 levels, it has signaled a Top or Bottom (even short-term) for at least 3-8 points.
I have plenty of cases of CMI extremes signaled followed by Market Reversals. On Jan. 05, 2012 was such an opportunity to find a ES Top.
On Jan. 5 markets rallied all morning from a low of 1260 and reached 1278 by 1.30pm ET. I was trading an ABC Bullish pattern and was out of my positions by 1272 level. ES continued its uptrend and rallied to 1278 level. Around 1.30pm, I noticed CMI reached its exhaustion level +150 ((Chart 1). ES price level was also coincided with my pattern exhaustion level 1278. By 2pm, Market internals started to weaken as ES started to trade below CMI 150 level. This provided another trade opportunity for me to short ES from 1275 level. Around 3.45pm, I closed my trade at 1270.5 to net 4.5 points profit in ES. I knew ES may fall
futher down, but I do not want to deal with market closing volatility. ES continued to fall (Chart3) and trade lower in Globex trading.
January 1, 2012 4:58 PM
Hi All,
Thanks for all your wishes.
WE WISH YOU ALL HAPPY AND PROSPEROUS NEW YEAR 2012!!
Sorry could not post in my blog as much as I wished, but I am going
to keep 2012 posts pretty regularly. Have some exciting new concepts I am
working on most of 2011 and I’ll keep you updated on this blog and my main
website: http://www.suriNotes.com
HAPPY NEW YEAR!!!
Regards,
Suri
October 10, 2011 11:15 AM
WEBINAR On Thursday, Oct. 13, 2011 at 4.30pm EDT
As a follow up to the Trading Chart Patterns presentation I gave in June 2011,
I am presenting another FREE webinar, focusing on discussing my current research
on the Advanced ABC Chart patterns and its trading methods.
Register for the webinar:
http://www.bigmiketrading.com/webinars/#registernow
Goto Meeting Link:
https://www3.gotomeeting.com/join/202751110/106311815
The webinar will be on Thursday, Oct. 13th, 2011 at 4.30pm EDT.
My presentation topics include:
* Market Context and its Importance
* Pattern Components like Strength, Location, Size, Symmetry and Clarity
* ABC Patterns and its types
* Trend Quality
* Trading ABCs, Head and Shoulders and Double Top/Bottom Patterns
I will continue to present few other topics in future at BMT. Please request any
specific topics or any other ideas you may want me to discuss , please send an email.
Looking forward to meeting all of you on Thursday, Oct. 13th, 2011 at 4.30pm EDT.
Regards,
Suri
October 2, 2011 11:15 AM
Books on Trading Psychology
Most new traders are never truly prepared for Trading. They focus their entire energy, time and money in learning new Techniques, new Books, new Software etc. Very few traders actually think of the most key important element of trading – Psychology. In the beginning of my trading career, I thought trading is all about Techniques/Analysis and nothing about Psychology. Of course, markets have a funny way of teaching each individual in its own and unique way. I have been trading for over 15 years full-time and now I learnt to respect Psychology as it is one of my favorite interest. During my career, I have taken many courses, classes and read hundreds of books to improve my trading skills, techniques and psychology.
I can attest my trading success to Psychology more than the Trading techniques I learnt or built. To-date I still read Trading Psychology books and maintain and improve my core belief of markets and its trading psychology. I have come to know few Psychology author’s styles which fits my way of thinking. I have gone through a series of methods and meditation to change my psyche to fit the markets. This transformation is really magical and keeps me in check with the reality to achieve my own trading goals.
There are plenty of great Trading Psychology books out there. It is very important to know which author or his style works for your psyche and style. Each trader must focus and pick one or two authors and learn from them and their books/courses etc.
Here is my list highest recommendations for Trading Psychology books. Focus on just ONE or TWO authors and their approaches and books/courses
etc.
1. Ari Kiev (www.arikiev.com)
2. Ruth Barron Roosvelt (www.ruthroosevelt.com)
3. Brett Steenbarger (www.brettsteenbarger.com)
4. Maxwell Maltz (not trading specific, but over-all human psychology)
5. Dr. Doug Hirshhorn (www.drdoug.com)
6. Mark Douglas (www.markdouglas.com)
October 1, 2011 5:01 PM
Hail Mary Pattern Setup
HailMary Setups are rare but when they do occur they are quite reliable. Hail Mary Pass is referred in ‘American Foot Ball’ as very long pass in desperate situations.
Here is my prior post about HailMary with rules on its detection and trading.
http://www.tradechartpatterns.com/?p=512
On Sep. 29th, ES was selling off until late 3pm. I was lucky to find the bearish setup and started shorting every time it reached Mid Band. The last time it reached mid Fib. Band and attempted to close above I started to see the HailMary setup. Around 3.30pm, ES dipped below mid Fib. Band for last time and started to rise. I waited for price to close above the GlobexLow (1141) to confirm the potential HailMary trade setup. Also noticed ES started to ramp up the speed and closed above prev. Low (1143.5). This is a clear sign that ES may be setting up for much higher close. At 4.00pm, ES hit the high of 1157 (near Pivot).
October 1, 2011 10:56 AM
Sorry for not updating my blog as I had many other projects in the last few months… Now
Summer is over and I plan on updating once or twice a day with my new found knowledge
in Pattern research and Trading.
All along, I have been updating both Intraday and EOD
my main website http://www.suriNotes.com
Thank you guys for sending your kind emails to restart blogging.
Regards,
Suri
March 9, 2011 8:57 PM
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