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.

Trading Dragon Pattern in S&P Emini (@ES)

April 6, 2012 · Posted in Double Bottom, Dragon · Comments Off on Trading Dragon Pattern in S&P Emini (@ES) 

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.