Importance of Trend Confirmation

November 13, 2012 · Posted in ABC Bullish, SuperBars · Comments Off on Importance of Trend Confirmation 

Market wisdom constantly teaches us “TREND IS FRIEND” and never ignore or counter-trend. Most traders look for trend indications to ride the trend wave.
In Pattern trading, it is most important to trade patterns with the trend for any trading success.

My primary trading methodology is to trade few Geometric patterns (ABCs, Gartleys, DB/DTs, Dragons, H&S/Inv. HS, Breakouts/Breakdowns in the direction of trend with Market Context. One of the aspect of my trading is to wait for TREND confirmation before entering into any pattern trade. Patience and disciplinepays off big if you wait for Trend confirmations before entering into a trade.

On Nov. 12th, 2012, S&P E-minis presented a case for clear trend confirmation into ABC Pattern setups.

Around 10am, I started watching a great ABC Bullish Pattern Setup with Entry Level above 1378 with a STOP at 1376. I patiently waited for it to trigger (Close above EL).
To my surprise, SuperBARS (Trend based Paintbars) is showing continuation of bearish trend even above EL. This tells me that down leg (BC) in ABC Pattern is NOT complete.
I hesitated a bit and removed my bid to buy. ES tried to break above 200-SMA and started drifting lower below 200-SMA with Bearish SuperBar Trend. Once
price closed below ABC Entry (1378), I knew Superbars did indicate further correction into ABC leg and may be forming a potential Double Bottom setup.

I waited patiently for another 90 minutes for ES to complete its Double Bottom setup (still in ABC with C at 94%). Around 11.30am I started seeing GREEN SuperBars
signaling a potential reversal and completion of Double Bottom and ABC Bullish Trade setup.

I entered a Long trade into ABC pattern at 1374.5 with a Stop at 1372.5 (below C). Targets were placed at 1374.5 (+2), 1376.5 (+4) and 1378 (+5.5). Stop was set at -2 points.

Within 90 minutes of time all my targets were hit. Patience and Discipline does pay off and have a great merit in trading.

TRADE Chart

Test of Patience — Dragon/Double Bottom/ABC Bullish Trade in NQ

May 2, 2012 · Posted in ABC Bullish, Double Bottom, Dragon · Comments Off on Test of Patience — Dragon/Double Bottom/ABC Bullish Trade in NQ 

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 :)

Second Chance Trades in ABC Bullish Pattern

April 16, 2012 · Posted in ABC Bullish, Uncategorized · 1 Comment 

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.

CMI Extremes Signal Market Tops and Bottoms

January 6, 2012 · Posted in ABC Bullish, CMI · 1 Comment 

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.

Advanced ABC Chart Patterns (Webinar)

October 10, 2011 · Posted in ABC Bearish, ABC Bullish, Pattern Trade, Seminar · 1 Comment 

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

Sears Holding’s ABC Pattern Completed

March 9, 2011 · Posted in ABC Bullish · Comments Off on Sears Holding’s ABC Pattern Completed 

CVS Options Call Update

December 27, 2010 · Posted in ABC Bullish, Head and Shoulders · Comments Off on CVS Options Call Update 

The last post on Dec. 6th showing CVS ABC Pattern and its Feb. 35 Options. CVS is trading in ABC Bullish Pattern with a Long triggered at 30.70, targets: $35 (100%AB), $36-$38 (127%AB-162%AB) and stop at $29.40 (below C). On Dec. 6th Feb. 2011 $35 Call options were trading at 0.50c. On Dec. 22nd, CVS reached its 1st target of $35, and Feb. 35 Calls were traded at $1.40. The chart below shows CVS chart as of Dec. 23rd trading.

ABC Patterns in Options

December 6, 2010 · Posted in ABC Bullish, Head and Shoulder, Options · Comments Off on ABC Patterns in Options 

ABC Patterns with Options

ABC Patterns are integral part of many other patterns like Double Tops, Double Bottoms and Head and Shoulders. When I see Inv. Head and Shoulder patterns and its breakouts I plot ABC Patterns and trade using Options. Here is an example of CVS (Caremark Corp.) Daily Chart. This chart shows a clear Inverse Head and Shoulder pattern. Plotting ABC Bullish Setup, it covers from Sept. 2010 to Dec. 2010, trading above EL Level. On Friday Dec. 3rd, it traded above the Neckline to signal a breakout. The distance from the Neckline to the Head is about $6, so the projection from the Breakout level is also $6, targeting around $38. I plotted CVS Feb. $35 Calls in the subgraph. This chart also shows a potential double bottom pattern confirming the validity of Inv. Head and Shoulders in the underlying stock chart. The Feb. 2011 CVS 35 call is trading at $0.50c. Expected target is around $1.10-$1.40.

Patterns in S&P500 Index

November 12, 2010 · Posted in 2B Patterns, ABC Bullish, Double Top, X5 Patterns · 1 Comment 

Here are potential scenarios from S&P’s daily chart patterns.

1. The most visible pattern in S&P since June 2010 until now (Nov. 12, 2010) is Inv. Head and Shoulders. Late Sept. SPX traded above neckline to confirm Inv. H&S pattern. The target for Inv. H&S Pattern is 1250 (100% of Necline to low of Head). This target is also inline with X5 target 1231-1246 (price cluster).

2. The current famous pattern is Trader Vic’s 2B (2T) Pattern. It is a form of irregular Double Top formation. First Top is from Late April at 1219 and the second potential top is on Nov. 5th at 1227. If S&P slides and closes below 1195 (also 21-EMA), it may confirm 2T pattern. The trigger for a short-trade is to enter the low of the bar which closed below 1195. Set a STOP above the Nov. 5th High + few points (1229-1230). Target is at least the 50% of swing range nearing the Neckline (or ‘B’ in X5 pattern). Ultimate target for 2T pattern is between 61-76 of prior swing.

3. Last but most vivid pattern is X5 pattern. It says, current slide may be just a pullback. In that case, next price cluster may offer some resistance (1231-1246). If price reverses from current sell-off and trades higher, there are two possible scenarios.

‘D’ is trading outside of XA range
A. Bearish Butterfly (Target 1.27XA to 1277).
B. Bearish Crab (Target: 1.62XA: 1350).

4. ABC Bullish pattern is also embedded in the X5 pattern. It shows the Price and Time Targets coinciding with some of X5 target ranges.

Disclaimer: The chart analysis provided here is for educational purpose only.

Regards,
Suri

Another Elliott Wave Trade in ES

August 10, 2010 · Posted in ABC Bullish, Elliott Wave · Comments Off on Another Elliott Wave Trade in ES 

I am finding EW trades more now… This may force me to go back and study Elliott Waves all over again :) I do like when they work intraday, so I can quickly evaluate if my thesis is correct.

Today ES started to sell-off at the open and started to form 0-1-2 setup (ABC) around the mid Fib. Band. This is usually not my typical trade since the pattern formation is around the mid Fib. Bands not near the extreme bands. Anyway, around 10.45am, price formed a small ABC (0-1-2) and traded above mid Fib. Band. This has given me the first clue that it may be the seed-wave (0-1-2) of EW pattern. I quickly started to plot potential Wave 3 range. I suspected the W3 may be between 1123 (127% of 0-1) and 1124.5 (162% of 0-1) setup. About 11.45pm, Price traded at 1124.5 (162%) and started to retrace to the mid Fib. Band (also at 100% of 0-1). Now I was confident that if price starts to rise, it will at least see between 1125 (0.62 of 2-3) and 1127 (0.76 of 2-3) for Wave 5. Just about 3pm, price traded at 1127 and finished Wave 5.

In my view, EWs are hard to detect and very rarely they are easy to spot with naked eyes. But when they do work as today, they really show the power of Elliott Waves and Fibonacci Ratios.

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