Long Term Outlook

Rising long term interest rates and the FED’s actions have sent the markets in a tailspin. We have been in a bear channel for the last month and a few days ago attempted to break out of it. We are now back in the bear channel and will likely continue to do so until we have a confirmation that markets have reversed. Look for a push in the NQ  past the 2900 zone. There is a lot of open room and we will likely fill the bear channel gap. Use the pullback as an opportunity for another big short run, but play both sides. Trade the trend and don’t pick tops or bottoms. 

3 Pushes to End a Trend

The 3 push pattern is a very high probability end of trend pattern. I like it most when it occurs at HOD and LOD, that way we know that bulls or bears are exhausted on the 3rd push to set news highs or lows and the ones that trade the 3rd breakout are trapped.

Here is a live example from today's price action:

You never want to assume that a 3rd push is going to happen. The main use of the 3rd push pattern is utilizing the concept of strategic stop placement. After the 3rd push your directional bias changes and the 3rd push is used as your stop placement area since a break of the 3rd push level would invalidated the trade.

How to Trade 1 Hour Price Structure- Bull Channels

The 1 hour chart is in a strong and steadily reconfirming bull channel. In bull channel price structure, you want to buy the lows of the channel and sell around the highs or OPs. It is the opposite for bear channels, but the concept is completely the same. Continuing with bull channels, you want to stay away from shorting the lower range and buying the upper range because those are low probability trades. You want to wait for a breakout of the range before you start doing that.

I took profit on both contracts @ the origination point of the down move from yesterday in my main platform. The reason is because this is line of first resistance and high prob of stopping he shorts that went RF yesterday and then continuing in original longer term direction.

I still have 1 contract running with target above OP @ HOD in my other platform just in case this does pull up to the extreme top range of the bull channel price structure:

Trading the Range

The March 17^th sell-off broke the origination point of the up move and quickly reversed back to the range between the highs of the year and the double bottom. A second sell off broke the double bottom but was unable to reach the origination point. This was a strong bull signal. We are now at the double bottom point of interest and moving in a tight range. If that point doesn’t break, than we believe the break out to the upside will occur and test the highs once again. It’s very possible that we’ll see a swing up, fail at the highs, and then reverse back to the double bottom point of interest. If that point breaks it’s likely the trend will continue to test the origination point. We’ll have to see at that point the signals for the next move. The range is very large and it’s very important to maintain your points of interest as the market makes its moves.

Waiting for major zones to dictate direction

The NQ has been in a steady range for the past 4 days. We failed to break out of the range on Friday, with the 1 hour candle closing back in the range. We wait for critical points of interest to break and follow through to give us sustained moves.

- Break of previous day's low from Friday could signal profit taking and a move to the bottom of the range and possibly breaking out to the downside.

- Break of POI at top of range could signal attempt to test PDH and possible final bull trap up there.

I highlighted the zones on a 1 hour chart below. You really want to wait for sentiment to develop a move and then trade in that direction. Right now, the signals are yielding 2-5 points on average which is not enough to build a position, but it is enough to take profits repeatedly. You need to make sure that you are reasonable with your targets and wait for a significant move to develop for position building. Green zone is where we are looking for bulls to succeed and upside movement. If there is a buyer failure in that zone, we are then short the breaks of the range. The red zone signals possible shorting pressure. If we break that range to the downside, we are looking for shorts. If we have a seller failure there, we will look to buy with stop at SF.

News Announcements for Monday
***No major US announcements

2:00am JPY   Prelim Machine Tool Orders y/y                                                               

3:00am EUR  German Trade Balance                                 

3:45am EUR  French Industrial Production m/m                                           

4:15am CHF  Retail Sales y/y                                 

7:50pm JPY     BSI Manufacturing Index                                             

             JPY     Monetary Policy Meeting Minutes                                                           

             JPY     Tertiary Industry Activity m/m                                  

             JPY     CGPI y/y                                                             

8:01pm GBP    RICS House Price Balance                                                                            

8:30pm AUD    NAB Business Confidence                                                           

12th-14th NZD REINZ HPI m/m

Trade the Trend - following major resitence levels.

The month of February ended very volatile as expected. We had lots of buying and selling opportunity and capitalized on the large trend swings. We now look forward to the month of March and it should prove to be interesting as we continue to test the new highs of the year.

The 1 hour chart shows us that we broke through the major resistance in the 2760 to 2770 range. This is what we expected going into this trade following the breakout of the previous day. One of the rules is to not pick bottoms and follow the trend until it is confirmed to have reversed.

The 5 minute chart shows how we started to build our positions last night and into the morning. The profit position is the buy at H1 after we hit the low of day (LOD). We placed our stops a tick below the LOD. The NQ since then hasn’t tested the LOD levels and looks to continue the uptrend. We will look to add to positions on the breaks of HOD and continue building the positions as the NQ rips up. The most important thing is keeping the trade risk free (RF) and keeping your stop above avg price. The next point of interest (POI) is the highs of the year. We’ll expect major resistance at these levels and see how it plays out. We do not pick tops or bottoms.  

 

Consolidation zones after major breakouts

This is going to be a big week for the markets and its resiliency is going to be tested. It looks like we’re developing a major consolidation zone after breakout. We’re going to want to sit tight today and see the markets develop. Don’t rush into signals or chase after trades. The most important rule is to look for the clear signal and trade the system. Stay out of consolidation zones and wait for the trade to develop. We expect to see downward pressure on the NQ mini and possibly continue throughout the week.

 

Trading major trend reversals: Real-time live trade example

Continuation from the prior post, here is a live trade I acted on. Even though you miss the initial ideal entry point, you can't be afraid to go with the trend a little bit away from the initial signal if you may have missed it.

Here is a live trade based on the long signal I posted about earlier:

Entered, moved stop above entry, bought more above high of previous candle, adjusted stop higher and higher.

Outcome: Met target on half a POI (blue line). Stopped out on half by an L1 for profit.

Chime in! How did you guys trade today's volatility? What were you looking for? How did you react to your signals? Did you follow your plan?

As always, questions encouraged!

HT

How to spot reversals: Patiently waiting for the signal is key

Fundamental and technical bias was short all day. All long signals should have been avoided UNTIL a solid reversal signal emerged. Trying to pick the bottom all day would have resulted in stop after stop. A) when you're pushing lows, the higher probability trade is to short the lows vs. thinking final low of day was put in.

In a down trend you will eventually get a reversal signal. This tells you two things: 1) You should exit your short position and 2) consider long positions since bias reversed to the upside. The most important thing is to wait until this happens.

The key is for the signal to generate enough of a move in your favor for you to move your stop above entry so that you are risk-free. If the move breaks down and it was a false or shallow reversal, you're risk-free and cannot lose money on the attempt since you got stopped out for a slight profit! So it's worth recognizing the signal and taking a shot at a high probability trade.

Here is a real-time example:

Stop is placed below lower high initially, once market moves in your favor, move it above your average price no matter what.

Please feel free to jump in with your opinion.

HT

NQ YTD Price Action - Trend Review

Hi All,

The last 10 days have been very exciting and filled with opportunity on both ends of the spectrum. We broke the high of the year 4 times in this period and we did it in a sideways fashion. Yesterday we saw a major reversal of over 60 points and broke multiple resistance levels. For the futures trader this was a day filled with opportunity. The question I ask myself is where we go from here. The chart below illustrates the NQ action YTD.  

After hitting highs in late January we struggled to get to the 2778 level in February. Once we did the resistance was pretty steady on both ends. We hit highs 3 more times and after hitting the high around 2782 we had a major reversal of over 60 points. There is only a 50 point spread between the low of the year and the previous low resistance levels in February. I think in the next week we might test Level 1 low and if that breaks it'll continue to the Level 2 low and so on. In the short term we might see a relief type rally and find opportunity there, but I think at some point we will test the year’s lows.

The Sequester is quickly approaching and we all know how close Congress likes to cut it. Unfortunately this issue is more complicated and we are in serious danger of stopping the economic recovery in its tracks. This is not the only issue facing the market, but this is what I’m monitoring into next week or two. So, with that said we are traders and I’m looking forward to the opportunities coming in the next days. The current pull back of this magnitude and current events we believe are going to add selling pressure to the NQ. I know this is day trading and we look for hourly signals but an outlook helps too.

We’ll be looking for the NQ to test Level 1 in the next few days and if that breaks then we are headed to Level 2.

We would love to hear from you on your current outlook and what the last few days of price action is trying to tell us.

Introduction

Hi everyone. My name is Greg Oray and I’m Timothy Hanna’s new associate. We’ll be working together trading futures and maintaining this blog with up to date trades and strategies. We’re going to learn a lot as we move forward and with a bit of luck we’ll make money along the way. I’m looking forward to working with Tim and sharing our work with the trading community.

Trade Results- 2/18/13: +5 ticks (HT)

Market holiday today, futures closed early. I only had 1 trade last night which I will discuss regarding entry and exit.

NQ had a seller failure in early after hours. The entry has an H1 following the SF bar. Target was @ most recent swing high due to low volume because of holiday session. If I had multiple contracts, final target would be at major swing high (blue line).

Blog Starting Back Up

I'm starting the blog back up this week. I began working with Greg Oray who will also be posting on here with daily trade analysis, system explanation, and various other topics. If there is anything you want us to touch on or discuss, please let us know and we will be happy to do so! Good to be back and looking forward to talking with everyone again.

HT