The 3-2-1 Approach: A Simplified Method for Trading Any Market

[bthomas]

Volume Exhaustion - One Last Time

On Thursday, July 10th, the 8:30 EST bar was clearly a high volume bar. The entry, out of the top of the box, was 117.095. The market then reversed at 117.14, at the S2 level identified by Charles Cochran in his 7am commentary.

4/32nds may not see like alot, but it is $125 per lot traded. If you can handle a 5-lot, that's $625. You're done for the day. If you trade 200 of the 240 trading days in the year, and can duplicate that performance, that's $125,000 for your 5-lot.

Work to make your business plan on a daily basis, then shut it down.

 

[bthomas]

Volume Exhaustion and Volume Divergence

Monday, July 14th gave us excellent examples of two high percentage trades I've demonstrated in prior posts.

The volume spike at the open, characterized by a bar much wider than surrounding bars, followed by higher prices in the very next bar usually but not always indicates continuation. Taking the trade out the top of the spike bar at 115.23 allowed you the opportunity for almost 15/32nds ($468.75 per lot traded). You had to stick with the trade for 30 minutes but faced only 3 1/2/32nds of heat before working.

The restest of the high at 12:10 shows decreased buying in the volume histogram below the chart. At the least, this type of price action should pause the move. In this case you had the potential of 10/32nds (312.50 per lot traded) on the pullback.

Either of these high percentage trades would have allowed you to achieve a business plan of 4 to 6 ticks daily.

 

[MPxtrader]

ZAL..have you spoken to Pete and or gone up to check out CF32?

 

[bthomas]

Trading Comments & Projection

Here are Charles Cochran's comments about trading on Monday, 7/14, and a preview of 7/15.

F2 Comments: What a day. Based on Friday’s close you would have expected continuation selling today. the Fed’s fix for Fannie Mae/Freddie Mac bombed. The selling spread into the banking sector shortly thereafter. A flight to quality play in the Bonds quickly ensued w/the Bond rallying to 117-075 before its close at 116-24. The market is pointed higher w/some help from the news. We have a full news slate at 0830 EDT tomorrow. Know the news and you have the trade. Will play for a setback entry with the news with an exit, if the range isn’t extended. Tomorrow’s news: PPI is expected at 1.3%; core PPI at .3; NY Empire Index at -4.0; Retail Sales at .3%; Ex-Auto at .8% and Business Inventories at .4%.

 

[bthomas]

Sherlock Holmes and the News Day Trade

Sometimes you have to be a bit of a detective to solve the puzzle of when to take a trade. On July 15th, there was a bevy of news events to be considered.

At 10am EST the Business Inventories Report was released and Chairman Ben Bernanke was beginning his address to the Senate Banking Committee.

Followers of this thread know that we suggest waiting for a pullback after a news announcement and then trading the retracement. We like to see an 8 to 12/32nd retracement, in this case, off the high. The actual retracement was 11 ticks.

Here we have two additional factors supporting the trade. First 117.07 is the highest volume area shown in the last 30 days. High volume areas act as both support and resistance. There is also a deceleration square, indicating that the selling has dried up. And the volume histogram under the chart shows decreased selling at the test of 117.07.

Taken together, these factors make a compelling case for taking the long trade, easily allowing you to make your business plan of 4/32nds per lot traded as the market rose to 117.17.

 

[MandelbrotSet]

Quote from bthomas:

Taken together, these factors make a compelling case for taking the long trade, easily allowing you to make your business plan of 4/32nds per lot traded as the market rose to 117.17.

Please post a blotter.

TIA

 

[bthomas]

7/16 Recap and a Heads Up For Early 7/17 Trading

F2 Comments: The news was negative and the market sold. Pretty simple when you think about it. News drives the markets. Big money is placed on fundamental news. Today the inflation news took precedent and inflation is bad for bonds. Bond sold. Period. The market is at its bracket’s edge. Some news tomorrow that could impact the Bond’s direction. If the news is worse than forecast, the Bond can rally. And if better, it can sell. The ES’s reaction to news, crude prices and tomorrow’s news will be the focus. Housing Starts is expected at 970K; Permits at 958K; Jobless Claims at 385K; Philly Fed at -15.2. If ES is higher and news as expected, want to sell the bond. First sell zone is 115-19/23. Second sell zone is 115-27/31

 

[bthomas]

Putting It All Together

The market was set to break. The news on a headline basis was negative for the Bond. The ES held and the Bond sold hitting 114-15 into the close before recovering to 114-315 off of the GOOG/MSFT earning’s news. The inverse relationship continues. No news tomorrow. The ES’s OVN direction and reaction of the rest of the world to MSFT and GOOG’s earnings should help reveal the direction of the financials. If OI in the Bond didn’t grow today from new sales, it will be easy to turn the Bond around. As usual the picture is almost never 100% clear. If ES recovers OVN, today’s market activity and structure still favor lower prices tomorrow.

F2 Comments: The ES rallied off the early news that was negative for the Bonds. The Bonds sold off this news hitting 114-15 before rallying back to 115-03. GOOG/MSFT earnings were a disappointment and the ES gave up its late gains. The inverse relationship continues. No news to drive tomorrow’s trading. The focus will be the direction of the ES. If the ES recovers from its late selling and rallies back, want to sell the Bond and see if 114-16± can be taken out. First sell zone is 11431/03. Second sell zone is 115-07/11. Cover, if 114-16 does hold. If the ES is sold OVN, OK to probe the long side of the market w/an exit if 115-08/12 is rejected. Preferred buy zone 114-25/29.

 

[bthomas]

7/21 Trading Recap

F2 Comments: The market paused after several days of heavy selling. When a couple of attempts to break 114-00 failed, the way was set to trade higher. The ES had stalled further supporting the Bond. And little in the way of news to push the market either way. This is options expiration week. The Open Interest suggests a close between 113 and 115. As the day progressed the volume built higher in the profile favoring a retest of the day’s high or higher prices. This is what happened. After 1600 EDT Apple announced its earnings taking the Bond to 114-29 before its close. No news tomorrow to force the trading. Will be down to the direction of the ES. Had a day last week where earnings disappointed too, but the market recovered and rallied the next day. If the ES is lower, do not want to be short the Bond. If ES is sideways to higher, Want to sell the Bond at 114-27/31 OB. Will cover, if 114-16 then holds. If ES is lower, OK to buy, especially at 114-21 OB w/an exit, if 115-00 then holds.

 

[bthomas]

TIPS Auction Day

F2 Comments: The market has been trading lower and did so again today. There was no news to drive the trading. The ES’s direction was the focus and the ES rallied today. This took the Bond lower. The 20Y TIPS could not have been very good w/the selling that hit the market on the auction. The auction took place at 114-06. This will be the key price level to monitor tomorrow. Will tell us how the Dealer community is faring. The close was weak. The structure favors lower prices. Want to sell into strength and see if 113-20/24 can be taken out. If it holds, will look to the long side of the market. 1st sell zone is 114-07//11. Back up sell is 114-15/19. Cover, if 113-20/24 holds.