Trading Large ABC Patterns

December 28, 2012 · Posted in ABC Bullish, Volatility Zones · Comments Off on Trading Large ABC Patterns 

Trading large patterns is a bit risky. My definition of large patterns are patterns with Major swings of patterns with 15 pts or more. Of course, it has larger targets but it also has Larger Stops, which may or may not fit into many traders trading plan. But there are some tmes, Larger patterns with Volatility around the entry have smaller stops (by design). This way if Pattern is WRONG, you can get out of trade with a smaller loss.Today’s ABC presented such an opportunity.

From mid day yesterday (Dec. 27, Thur.), ES rallied from a low of 1396 to 1416 on “fiscal cliff” news. This swing (AB Leg) is 20 pts in the ABC pattern. The BC retracement (overnight) was 16 pts. These type of ABCs will have larger targets and larger stops. At the open, ES showed this pattern completion. I was watching Opening VLTY and it is over 60. I usually wait for price to settle (VLTY < 50) in the first hour and wait for trade trigger. Today VLTY also helped for a better entry and smaller STOP (EL to C). I was not still convinced at the OPEN and waited until 9.50 am to start looking closely for a trade setup.

Around 9.55am, I entered LONG at 1403 with a Strict STOP at 1400 and NO-more adds, incase if I am wrong. As expected, Large ABC has Larger profit levels. So, my first Target was set 38%AB level at 1407 and next target is set at 1411 (just before 62%AB).

Around 10.30am, VLTY was slightly above 50. After sudden drop from 200-SMA, ES broke above 200-SMA to hit my first target: 1407 (+3 pts). I moved my STOP to b/e for the rest of the trade. About 10.50am, my trade was closed at 1411 (+8 pts). I still think this pattern may move much higher later in the day.

Side-Ways Trend

November 28, 2012 · Posted in Uncategorized, Volatility Zones · Comments Off on Side-Ways Trend 

Most traders have tough time trading side-ways markets. Many traders may be right on their setups or detecting the trend, but during the choppy side-ways markets they lose more money. In Intraday futures, I use BarTimes to measure the side-ways markets. On ES 1220 Tick Chart, I look for time to complete 1220 ticks. If the average of last 5 bars exceeds 150 seconds, I know markets are slowing and side-ways trading may be in order. I also look at Volatilty (VLTY) on the same chart to measure potential risk zones.

Today after market reversed its 12 point loss, around Noon, I noticed VLTY went above 50, signaling potential risk zone. Also, from 12.30p onwards, the ES 1220 chart showed VLTY > 50 on fiscal cliff news. So, I avoided trading any NEW trades until I see VLTY below 50 and BarTime falls below 150 sec.

Volatilty Zones

May 24, 2012 · Posted in Volatility Zones · Comments Off on Volatilty Zones 

Volatility Zones

Market Volatility refers to uncertainty or risk in the markets. Traders use Volatility to measure the changes of security price and act accordingly to control the risk. In calmer markets, Volatility will shrink as lesser price changes occur and in a volatile markets prices expand more rapidly. Most traders like to know and look for signs of Volatility expansions or contractions to limit their risk. Prices changing in volatile periods in a short-amount of time is credited for most traders losses.

Most savvy traders favor Volatility as they understand how to use it for their own advantage. In my view, volatility is also biggest reason why most Intraday or short-term traders lose money. In High Volatility conditions, short-term traders are wrong both sides of the trade (Long or Short) since price move rapidly in both directions. Hence, they find various methods to detect the Volatility or emergence of Volatility to understand their trade setups or avoid trades during high volatility zones.

I have designed a volatility indicator (suri.VLTY) to identify these volatile periods and plot them as Volatility Zones. These zones show how and when volatility is expanding and contracting. When I want to trade a pattern or a setup, I constantly check with VLTY and confirm a tradable condition for a trade. For my trading, I prefer VLTY to be trading in the mid range (25-50). When VLTY is above 50, I try to not enter a new trade, it does not matter how great the pattern setup is. When VLTY is above 100, I will exit out of my trades LONG or SHORT and stay out of the markets until VLTY gets back to normal range (<50). VLTY has VOICE alerts and alert once per bar when VLTY is exceeding Risky limits (50) and Extreme Risky (100). Usually in high Volatility conditions Market Internals also move rapidly and in my view they may not provide any usable information.