If one where to ask my:" What's the one think I should learn from you about chart analysis?"
I would answer:
"Learn to identify the real Pendulum-Swings, Swings and Pivots, and how to put them into context.
Why would this be my answer?
Because this is what you need to become a very good at to use Forks, Action/Reaction the right way.
I often say, that one could trade just with this one technique, if he would master it.
However, below I show you the weekly chart of Copper, the April contract.
As you can see, this guy is stair-stepping up perfectly.
We are above the U-MLH and had a test/retest on it, why I don't expect a immediate tripple test at the
U-MLH. And I also don't think that Copper shoots up immediately above the WL1. But hey, who am I to say it will not happen? ...at every moment, everything is possible.
Now, because I have no clear idea about the future moves, I see the chances for a potential sideways movement, a slower grind, but not a further move to the south, because price is above the Centerline.
In such situations, I often use a Strangle to accommodate my greed for trading.
This gives me a PTG of $372.50 on the Put side, and $285 on the Call side p.c., with 59 days to expiration.
Let's see how I get challenged from the market...
I closed this trade (small profit) to free money for high volatility trades.
Most often I play the markets with options. So after the mini crash we had, volatility exploded which means very, very high credits for me when selling options.
This is called "Money Management".
If you can throw your money where it makes much more then where it's working now, you have to consider it - at the end of the year this makes a nice difference.
Use opportunities when they're offered, but don't do it just to be greedy...
Here we see another nice example about Action/Reaction.
What you see is a Fork with 4 Warning-Lines.
- watch how price acted at the U-MLH, at the CL and how the rules you learned so far are applicable. Study it deeply to get out of your time you spend on this Blog!
- price hit it's head first, bounce a little, then traded through it and did a test above it.
- price traded through it and hit the line multiple times. Nice indication that this WL acts as support.
- price just stopped at the WL, then traded through it and never came back (...this is the momentum created from the bunching at WL2
- price stopped dead at the WL and for now it looks like a reversal. But be careful, this is a weekly chart and the week is not over yet...additionally we are in a fast moving (slight exponential) uptrend!
Comment your observations below the chart please, thank you.
btw: isn't it beautiful to work with such a clean chart? No Indicators, no Oscillators, nothing that disturbs your mind and your thinking §8-)
Price was shooting above the CL, and fell back below, doing a Test/Retest.
This indication is my potential to short Baba, by selling a CreditSpread and Buying DebitSpread, financed mostly by the C.S. This gives me a good BPR (BuyingPowerReduction).
I have only 46 days to let it play out.
This means, I have to keep my eyes on the Theta component of the D.S. - This is the reason why I sold a C.S. too, so my overall Theta is not melting too fast away and it fits to my chart analysis perfectly.
Update - 17.01.18
Yesterday BABA traded into the DebitSpread and the positions has a current overall profit of 30.60%.
It's already a nice profit in this short time since the trade was setup.
I watch how markets open today and then I decide, wether I close the position or not.
2018-01-20 - Update
After the last post I decided to hold the position.
But this situation is not very comfortable, since I expected BABA to drop a little more again.
Giving it a couple days more. But if price starts to climb again, I close the positions, but definitely bevor the earnings.
2018-01-23 - Update
Closed BABA at the open with a smaller profit p.c. then expected.
They ripped me off on the spread, but hey, still a profit...
2018-01-23 - Update with a live example
Here is your link to a live example.
To see how price did (...for you guys in the future), you just can click the "Play" button within the chart and see, what happened from today.
Remember - its a Weekly chart, so it needs time to draw the next bar from this week on...
Let's start this year with a "Trade Of The Week", which I will do every week this year, if there is anything to do of course.
So let's start the analysis with Copper:
Copper is approaching the lower side of the CL.
In this first Chart, the weekly, you see that price halted at the L-MLH the last time, and shoot up above the CL again.
Then price get hammered back again.
This looks to be clear weakness.
Next we look at the daily.
As far as we can see, price reached a extreme to the upside.
But why do I say this could be a extreme?
1) Look how the handle of the CL catches price.
2) Price is trading below the last weekly high (broke support).
Combining the information from the weekly, I want to go short this market.
I know that price will reach the CL in over 80% of time.
So I did the following:
I bought a Put-DebitSpread, +3.16 Put, -3.12
Max Loss: Debit of $317.50 p.c.
Max. Profit: ($1000 - $317.50 (Debit) = $682.50 p.c.
What to look for in this trade:
Because the DebitSpread has negative Theta, I don't want to let this thing expire.
I close this trade for profit if time/price ratio is on my side, or if price drops very fast to the CL and through my D.S.
I close this trade if the market does not move and DTE (Days To Expiration = Time left in the Trade) is around 10-20 days.
So, Copper doesn't correspond to my wishes.
What's the picture here?
Well, price did bounce up again and is currently at the U-ML.
This looks like a Hagopian, but until the U-MLH is broken by a outside close, I don't count it as such.
Unfortunately I only have 38 days to go and the position is 33% under water.
What can I do to defend it?
Or should I even defend this potential loosing position?
These are questions that you need to answer BEVOR you enter your trades.
Do you know where the risk is managed?
...nope, not during the trade - it's when you create your roadmap, your plan for this trade. Right there you decide what to do when things go sour.
In this case my plan is to stick to the position until I see a break of the U-MLH (on a closing daily basis) or until the position has reached around 50% loss.
Looking forward to your questions and comments.
Here's the gift from the trading god.
Copper bounced at the U-MLH and fell very nice within one bar.
Now yesterday price bounced a little, but I think the message is clear (...who the hell cares about what I think...). OK - We will see if it was such a clear message ;-)
However - the position is lightly in the green (7.6% p.c.) and I hold on to it (36 days to go...).
2018-01-20 - Update
Copper makes it very thrilling now...
I don't like this low close...usually it's a sign of reversal.
I'l give it another couple days because I know, price is reaching the Centerline over 80% of time.
2018-01-23 - Update
Here we are - Three days later...
I was able to close this trade with another nice profit p.c.
I would rather liked to hold on to this trade, but time is playing against me and so I took the money and run...
It's OK, so I can allocate this junk of USD's to another high probability trade.
Always remember - Don't be a Pig! §8-)