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position simultaneously. 3. For point 3, I am bidding long for a decline back at the weekly level + 3 points. The weekly level is 10,532, so my bid is that plus 3 points, which is 10,535. When two levels are close together like this (by
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at least 10 points— in this case a weekly level and the daily pivot), I will place my bid based on the level closest to the price action. I am filled on my long. The market eases through and trades around this level for half an hour. My stop is not hit, although it comes
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close. My initial target for “half at 10 points” is hit quickly, and I trail my stop. It is not until a couple of hours later that my second target is hit at the midpoint. This is an important note: some of these trades will last a few hours in duration, while others can last
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10 minutes. The key is to wait for the levels to be reached and not try to hurry things along or get out because of anxiety or boredom. Although human emotions are a good idea in building relationships with other people, in trading, they have to be ignored.
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4. I am out of the second half of my long more than three hours later, at a daily midpoint level. Since this is a choppy day, I just reverse and go short, placing the target on the first half of my position 10 points away from my entry. My second target is the
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next level below + 3 points. 5. The market actually moves quickly, and I’m out of the first half in 15 minutes, and the second half another 15 minutes after that. I reverse and go long and set up the same parameters: +10 points on the first
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half, and back to the other pivot on the second half. 6. I’m out of the first half quickly for +10, and the market continues to trek higher into the close. The market doesn’t quite reach my second target, and I end up getting out at the market at
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4:10 p.m. eastern, a few points below my target. Note again that by the time the moving averages crossed higher, I was already out of half my position. Trailing Stops in This Fashion Is the Key I’m not a big fan of
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aggressively trailing stops. By this I mean that if the market moves in my favor by 1 YM point, I will keep my stop static instead of trailing it up by 1 point. This auto- trailing stop strategy generally will stop a trader out on the first normal retracement, and these are moves I’m willing to sit through. However, if...
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and only then will I generally move up my stop to protect gains on the entire trade. For pivot plays, I treat stop movement the same way on both trending and choppy days. I’m just waiting for my first target to get hit. Once that happens, then and only then will I move up my stop. 1. Here we have our original 20 stop f...
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on a decline to the weekly pivot + 3 points (see Figure 8.18 ).
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Figure 8.18 2. If this was a trending day, then I would wait until my first target—the next pivot level— is hit. At that point, I would trail up my stop. On a choppy day, my first target would be +10 points on the YM, so in
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this example, that would mean that my stop would have been moved up sooner, right after my first lower target was hit. Tips and Tricks for Using the Pivots The key with this setup and all the setups I use is that the trader gets everything
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prepared on her charts in advance of the opening. Once everything is set up, all the trader has to do is watch and wait, or, better yet, utilize audio alerts to give her a heads-up that a setup is either forming or firing off. With pivots, traders can place orders in advance, as the exact targets, entries, and stops ar...
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other things if they come up. When the traders hear the alerts going off, they know that it is time to go back to their charts and see what is going on. There is no chasing. Either the orders will get hit or they will not. This system, like all the systems I use, is constructed in such a way as to naturally enforce the...
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make money in the financial markets. The important thing to know about midpoints is that you don’t need to use them all the time. I use them on days when the distance between two YM daily pivot levels is greater than 40 points. This is a general rule, and it is okay to use them if the pivot level is only 30 points. If ...
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together than 30 points, the midpoints don’t play as much of a role, as the markets will move straight to the next pivot, since the pivots are so close together. On my charts, I typically use a black background, which can’t be shown in the context of this book. I then make the daily pivots yellow, the weekly pivots lig...
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purple, and the midpoints white. I also make the central pivots solid lines and the rest of the pivots dotted or dashed lines. This way it is very easy to pick out what the markets are butting up against. The use of pivots has gotten a lot easier over the years. I used to calculate these manually, using a calculator, b...
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spreadsheet where all I had to do was enter the high, low, and close, and the spreadsheet did the rest. However, I still had to draw the horizontal lines manually on my charts each day, and this took a good part of half an hour. There is software that will calculate the pivots for a person automatically, but it general...
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ticks. I’m anal-retentive when it comes to this, and I have to enter my pivots manually each day—I want to make sure they are correct. I finally found a programmer who could help me out on this, and the end result is a piece of software that automatically calculates the correct daily, weekly, and monthly pivot levels a...
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Manually is fine too, but this does save time, something that I have less of now that I have kids! What About Fibonacci Numbers? One question I frequently receive with regard to the pivots is how they relate to Fibonacci retracement levels. For the uninitiated, Fibonacci numbers are used by traders
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to determine support and resistance levels, with the most commonly used retracement levels being 0.382, 0.50, and 0.618. In my experience, sometimes these work great, and sometimes the market doesn’t even know they exist and blows right through them. However, I do like to see where the Fibonacci cluster numbers are on ...
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accurate than regular Fibonacci numbers because of the use of more data points and the way the Fibonacci ratios are calculated. Getting these numbers takes a lot of work, and for a while I calculated them myself. Then I discovered Carolyn Boroden’s work at www.fibonacciqueen.com , and from then on I just subscribed to ...
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She works on both the time and price axes of the markets, using the confluence of Fibonacci ratios. For price, she runs retracements of prior swings using the ratios 0.382, 0.50, 0.618, and 0.786. She also runs price extensions of prior swings, which are essentially retracements beyond 100 percent. For extensions, she ...
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price projections comparing swings in the same direction. For projections, she uses 100 percent and 1.618. In doing this, she runs all possible levels from the key swing highs and lows in a chart and looks for the confluences. When she sees a confluence, these become the key levels in the markets to buy and sell agains...
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in the bigger levels found on 60-minute and daily charts, and I use these mostly for swing trading. However, there will be days when these clusters line up with some of the daily pivot levels, and of course on these days those particular levels become that much stronger. I also like to look at these Fibonacci cluster l...
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Let’s look at a few examples from Carolyn Boroden’s work. Mini-Sized Dow—June 2005 Contract, April 6, 2005 Figure 8.19 is on the 15- minute mini-sized Dow futures contract. You can see the obvious uptrend that developed from the April 4 swing low. For this reason, we wanted to focus on
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setting up clusters on the buy side of the market. We saw a nice zone develop between 10,489 and 10,492. This zone included the coincidence of a 1.618 price extension, a 0.50 percent retracement, a 0.382 retracement of another swing, and a 100 percent price projection of a prior corrective decline. The initial low was ...
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saw a rally to 10,578, or 89 points. Euro FX—June 2005 Contract, April 27, 2005 In the five-minute euro currency example in Figure 8.20 , we found a confluence of three key Fibonacci price relationships between 1.2970 and 1.2971. This included a 0.618 retracement of the 1.2961 low to the 1.2988
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high, a 0.786 retracement of the 1.2966 low to the 1.2988 high, and a 100 percent price projection of the 1.2984 high to the 1.2966 (swing) low. The actual low was made at 1.2972. The initial rally took you to 1.2990. Mini-Sized Dow—June 2005 Contract, April 4, 2005 For entries into the market, we ideally want to set u...
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“price clusters” in the direction of the trend in the time frame we are trading. We sometimes use “countertrend” clusters for exits or to tighten up stops on a position. The example in Figure 8.21 in the mini-sized Dow futures contract shows a confluence (clustering) of at least five Fibonacci price relationships in t...
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10,132–10,136 area. In this case, the actual low was made at 10,140. A “trigger” for an entry against this zone could be as simple as taking out a prior bar high. At that point, your initial stop could be placed either below the low made prior to the trigger (10,140) or below the low end of the cluster zone (10,135). T...
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Figure 8.19
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Figure 8.20
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Figure 8.21 These examples of Carolyn’s work show how these Fibonacci clusters act as support and resistance levels in the markets, and I use them intraday just as I use the pivot levels. They can also be used to initiate swing trades on larger time frames, as these can be used on any time frame, from a three- minute c...
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even a monthly chart. Carolyn also has a great book out on the subject entitled Fibonacci Trading: How to Master the Time and Price Advantage . It’s available on Amazon. What’s the Best Way to Trade Commodity Markets with Pivots? I mentioned at the beginning of this chapter that I prefer to
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utilize only weekly pivot levels on the other commodity charts. This includes anything other than stock indexes, and could be currencies, gold, oil … literally anything other than stock indexes. There are two reasons for this. The first is that while I don’t mind trading the stock indexes for smaller moves, I generally...
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moves, trades that last a few hours or more as opposed to a few minutes. In that respect, I look at hourly charts on the rest of the commodities, and I utilize the weekly pivots on these charts so that I can see these key levels in relation to the current price action.
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Figure 8.22 In Figure 8.22 , there is a chart of the euro currency futures contract from September 29, 2011. My main focus on this chart, as well as for other hourly commodity contracts, is the location of the main central pivot. On this chart, that is represented by the 1.3542 price point. Over the course of this wee...
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been attracted to this level like a magnet, and this is typical. This weekly “central pivot” is a key area for both initiating positions and taking profits. Summing Up the Pivots The pivot levels work mainly because of the psychology pain/pleasure cycle that perpetuates the markets each day. Traders who follow only
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indicators will chase a position when it is already half to three-quarters of the way off its pivot, and it is these traders who provide the stop losses to perpetuate the next cycle of market movement. If you rely only on indicators for your entries, instead of using the price action of the pivots, you will get in and ...
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What is nice about this system is that traders don’t have to watch it very closely once they are in a position. I’m not an aggressive trailer of stops. I like to get in a position, set my parameters, and then focus on other things. Depending on a trader’s work situation, he could do this at the office, especially on th...
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automatically bracketed trades. This way he can place the parameters and then go to the next meeting or appointment. Let the parameters babysit the position . This is much better as well because it takes human emotion out of the equation. I’ve created a video at www.tradethemarkets.com/pivots that gives additional, up...
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examples of pivot plays as well as live trading examples of the pivots in action.
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9 Tick Fades: Are They Really the Best Way to Take Money Away from Newbies? What Is the Number One Action Alert Available to Traders Today?
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The stock markets spend the majority of their time backing and filling. That is, they drift up to a resistance level, then turn around and drift back to a level of support, not really doing much of anything. For most of this time, there isn’t much for a trader to do except wait, and that usually requires extreme patien...
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right? They should be taking a trade or managing a trade, not just sitting around doing nothing. This is and will always be one of the biggest misconceptions about trading —the idea that a trader has to be in a trade nearly every minute or every hour of the day. In reality, there are always three positions traders can ...
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flat, meaning not having any trades on, is the best course of action 60 percent of the time. Cats don’t chase the first bird they see. They crouch and wait, sometimes for hours, for the right time to pounce. And that’s what the active trader should do. When something interesting actually does happen, such as a buy or s...
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for the alert trader. The key for traders is to be patient, sit on their hands, and wait for these moments to occur. Actively trading really means actively waiting. Overtrading is the number one reason most day traders fail. There is no easier way to do this than by watching the $TICK, or, I should say, “listening” for...
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+1,000 or under –1,000, this represents extreme buying or selling, and at this stage of the move, most of the bullets have already been fired. Many amateur traders get caught up in the froth and excitement, get scared that they are missing out on a big move, and jump onboard in the direction of the move— just as it is ...
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out on the reversal. Rather than join the move, I like to wait until an extreme tick reading is registered and then fade the move. Earlier I mentioned that I liked to listen for the $TICK. By this I mean that I have set up audio signals to alert me when these levels are hit. This way, I don’t have to stare at the chart...
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attention. I can be down the hall, but if I hear the alert, I know exactly what is going on. Getting down to specifics, whenever I see or hear readings of over +1,000 or – 1,000 $TICK, I fade the move by placing a market order. If we get a +1,000 tick reading and I am flat, I short the move at current levels. If I am a...
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another signal, I start exiting that move and initiating a short position. The reverse is also true. If the markets are selling off and traders are jumping in on the move down to the point where a tick reading of –1,000 is registered, I want to step in and buy. There isn’t any cleaner way to get on the opposite side of...
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couple of different renditions of this setup by other traders. The $TICK has been around for a long time, and many people who have been doing this for decades have a portion of their trading tied into the $TICK movement. In this chapter, I’m going to first cover the fading strategies. Toward the end of this chapter is ...
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when to “go with” extreme tick readings, meaning that when a +1,000 reading is hit, how to know when to wait for a pullback to the 0.00 line to actually buy and “go with” that extreme $TICK reading. Note that I use the terms $TICK , tick , and ticks interchangeably, and they all mean the same thing. When I’m trading,...
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tick is high here.” What Are the Trading Rules for Sell Fades (Buys Are Reversed)? 1. I have studied three different setups that I have learned from other traders and have modified to fit my own trading plan and style. Let’s look at the
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parameters I use for this “extreme emotion” play. I take trades only between 10:00 a.m. and 3:30 p.m. eastern. A lot of sporadic action can happen during the first and last half- hour of trading. I like to let the markets settle in before I take trades.
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2. I play tick fades in two markets, the E- mini S&Ps (ES) and the mini-sized Dow (YM). These can also be played in the SPY, DIA, E-mini Russell, E-mini Nasdaq, and any stocks that are mirroring the action of these indexes. For option traders, it is perfectly okay to
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use options on the SPY to do this trade. Of course, you should choose slightly in-the- money options when doing this. My preference, of course, is options with a delta of at least 0.70. 3. When the ticks reach +1,000, I short at
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the market. I like to set audio alerts for +1,000 and –1,000 readings. That way, I don’t have to stare at the chart. If the ticks get to +988 and fall back, I don’t take the trade because I won’t hear my audio alert. This keeps the setup clean and very specific, and not
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subject to trader interpretation. 4. For the YM, I use a 30-point stop and a 20-point target. I also set a time limit of 35 minutes on this trade. If my stop or target isn’t hit within the 35- minute time span, then I exit my position at the
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market. I like to use a timer with a beep so that I’m aware of when the 35-minute time limit has passed. Most traders have very little sense of time when they’re in a trade. 5. For the ES, I use a 3- point stop and a 2- point target, as well as the same time
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limit. 6. If I am stopped out twice in a row on this trade, I am done with tick fades for the day. By “stopped out,” I mean that my physical hard stop is hit, as opposed to the time stop. Note that it is on these days that I will
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switch to a “go with” strategy, which I will talk about later in this chapter. 7. If by 12:00 noon eastern the ticks have spent more than 85 percent of their time above zero, I will pass on all other tick fade plays for the day.
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This shows an extreme level of buying in the market, indicating that funds are accumulating stocks. These “power days” are rare, but they do happen about once every four to six weeks. They are accompanied by many extreme tick
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readings above 1,000, typically between 1,200 and 1,400 ticks. In addition, if it is past 10:00 a.m. eastern and the ticks have all been one-sided, for example, all positive on the day, I will wait until the ticks have spent some time in negative territory
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before setting up the first tick fade play. On these days, this is a sign to “go with” the ticks. What Are Specific Examples of Tick Fade Setups? Mini-Sized Dow—September 2004 Contract, September 1, 2004
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1. Shortly after 10:00 a.m. eastern on September 1, 2004, the ticks move up through +1,000 (see Figure 9.1 ). I short the minisized Dow at the market and am filled at 10,192. I place a stop at 10,222 and a target at 10,172. I also set my timer for 35 minutes.
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Figure 9.1 2. The markets drift lower, but after 35 minutes, neither my target nor my stop has been hit, so I exit at the market. I am filled at 10,182 for +10 points. 3. The ticks hit +1,000 again at point 3, and I short at the market.
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I am filled at 10,194. I place a 30- point stop and a 20- point target. 4. The markets roll over, and my target is hit 20 minutes later at 10,174, for +20 points on the trade. 5. The markets sell off hard, and the ticks
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get down to –1,000. I buy at the market and am filled at 10,118. I place a stop at 10,088, 30 points below my entry, and a target at 10,138, 20 points above it. 6. My target is hit within eight minutes, and I am out for +20 points.
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7. The ticks reverse and quickly hit +1,000, and I short at the market. I am filled at 10,168. 8. The markets roll over quickly, and I am out at 10,148 for +20 points. 9. The ticks hit +1,000, but it is 3:50 p.m. eastern, so I don’t
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take the trade. Remember, according to my trading rules, I don’t take any new tick fade trades after 3:30 p.m. eastern. Mini-Sized Dow—September 2004 Contract, September 10, 2004 1. On September 10, 2004, the ticks hit
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+1,000 shortly after 10:00 a.m. eastern (see Figure 9.2 ). I short at the market and am filled at 10,252. I place a 30- point stop and a 20- point target from my entry level, and I set my timer.
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Figure 9.2 2. Thirty-five minutes pass, and my timer goes off, so I exit at the market and am out at 10,257, a loss of 5 points. 3. The ticks ramp up again and hit +1,000, so I short at the market and am filled at 10,262.
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4. Time flies when you are having fun. My timer goes off after 35 minutes, and I exit at the market. I’m out at 10,252 for a gain of 10 points. 5. The ticks head north of +1,000 in the middle of the day. The only reason I’m aware of this is that
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my audio alert goes off. At the time, I was on the phone. I drop it and run over to the computer, short at the market, and am filled at 10,264. I set my parameters, set my timer, and go back to my phone call. 6. I hear my timer go off again, and I
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come back to my computer and see that I am still in the trade (that is, neither my stop nor my target has been hit), and I exit at the market. I get out at 10,255 for +9 points. I don’t try to finesse these timer exits—I just get out. 7. The ticks push past
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+1,000, and I short at the market. I’m in at 10,257. I place my stop and place my target. 8. The ticks continue to push higher, and the market rallies. My hard stop is hit for a loss of 30 points. Mini-Sized Dow—September 2004 Contract, September 9,
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2004 1. Around noon on September 9, 2004, the ticks hit +1,000, and I short at the market (see Figure 9.3 ). I am filled at 10,283. I place my stop and my target, and I set the timer.
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Figure 9.3 2. After 35 minutes pass, I exit at the market at 10,272 for a gain of 11 points. 3. The ticks again push up past +1,000, and I short at the market. I get in at 10,306, and I place my parameters.
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4. The market drifts down, and after 25 minutes my target is hit at 10,386, and I am out for +20 points. 5. The ticks pop up again, and I short at the market. I am in at 10,297. 6. Fifteen minutes later, my target is hit at
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10,277, and I am out for +20 points. 7. The markets shoot higher on ticks of +1,000, and I short at the market. I’m filled at 10,308. 8. The markets roll over, and my target of 10,288 is hit, for a gain of 20 points. In the end, this beats
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working for a living. Mini-Sized Dow—September 2004 Contract, September 8, 2004 1. On September 8, 2004, the ticks register a +1,000 reading shortly after 10:00 a.m. eastern, and I short the YM at the market, getting filled at
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10,355 (see Figure 9.4 ). I place my stops and targets and kick back. Once I get into these trades, there is nothing to do but wait.
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Figure 9.4 2. The market rolls over quickly, and my target at 10,335 is hit in 10 minutes for +20 points. 3. About 40 minutes later, the ticks act up again, and I short at the market, getting in at 10,337.
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4. The markets go into chop mode, and 35 minutes later my timer goes off and I exit at the market, getting a fill at 10,335 for a whopping +2 points. 5. A few hours later, the ticks start getting “jiggy with it,” and I short and get filled at 10,346.
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6. About 15 minutes later, my target is hit at 10,226, and I’m out for +20 points. 7. The ticks ramp up again, but I pass on this trade because it is now past 3:30 p.m. eastern. The trade would have worked out at a +20-point trade, but I have found that
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tick plays in the last half-hour tend to be less reliable. Mini-Sized Dow—September 2004 Contract, July 26, 2004 1. On July 26, 2004, the market action starts off weak, but there aren’t any extreme tick readings until just after 11:00 a.m.
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eastern (see Figure 9.5 ). At this time, I get a –1,000 tick reading, and I buy the YM at the market, getting a fill at 9912. I place my orders for my stop and target, and I set my timer.
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Figure 9.5 2. After about 30 minutes in the trade, the market firms, and I get out at my target of 9932 for +20 points. 3. The market is quiet for most of the day, and then as it approaches 3:00 p.m. eastern, we get
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a +1,000 tick reading. I short at the market and get filled at 9932. 4. About 20 minutes later, my target is hit at 9912, and I am out for +20 points. 5. There is another extreme reading in the markets, but it is past 3:30 p.m.
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eastern, so I sit on my hands and do nothing. E-mini S&P—September 2004 Contract, September 7, 2004 1. On September 7, 2004, I get an early +1,000 tick reading (see Figure 9.6 ). I’m watching the E-mini S&Ps, and I’m
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tempted to short, but I look at the time, and it is near 9:50 a.m. eastern. This is before my parameter of 10:00 a.m. eastern, so I pass on the trade. Although this trade would have worked out in my favor, I have found that tick trades in the first 30 minutes of trade are
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haphazard at best.
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Figure 9.6 2. I wait for the next setup, and it hits the tape near 11:30 a.m. eastern with a +1,000 tick reading. I place an order to short the E-mini S&Ps at the market, and I get a fill at 1119.75. I place a 3- point stop at
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1122.75, and I place a target at 1117.75. Of course, I also set my timer to buzz me when 35 minutes have elapsed. 3. The 35 minutes pass by rather quickly, and the only interesting thing that has happened is that my two-foot-long arrowana (a tropical
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fish from the Amazon that looks like a tarpon) tried to jump out of its tank, causing me to jump like I’d been hit with a cattle prod. Regardless of this distraction, I hear my alarm go off, and since neither my target nor my stop has been hit, I execute
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an order to get out of my position at the market. I am out at 1121.25 for a loss of 1.50 points. 4. Soon thereafter, an episode of “ticks gone wild” hits the tape, and they move back up to +1,000. I short at the market and am filled at 1122.00. I place my
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stop and target and set my timer. 5. My timer goes off while I’m enjoying a smoked turkey breast sandwich from Panera Bread Company. I exit at the market at 1121.50 for –0.50 point. 6. The markets pop
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