Great traders and true value investors know that it’s not only the return function that dictat...
How to Make Money While the Train is Refueling! (Part 3)
06/04/2008 12:00 am EST
Now I need a high probability trade entry set up that I have seen over and over—one that I trade regularly. I add in a sliding parallel above the upper median line that goes through the high of the bar that peeked above the down-sloping red parallel.
I am going to use this sliding parallel to set up a high probability trade entry with an initial stop loss order I can afford if I also find that the trade set up has an acceptable risk reward ratio.
The close of the last bar gave me a strong sign of weakness and convinced me the sellers were in control of this market. I want to get short now because I think this market is going to trade lower to at least test the bottom of the consolidation if not the energy point itself once it has restored its energy.
I want to sell a retest of the sliding parallel drawn off the spike high at 1398 ½. My initial stop loss order will be above the two recent swing highs price made during its congestion phase, at 1400 ½. If the market allows me to get short, my profit target will be at the energy point where two lines of opposing force meet, one up-sloping and one down-sloping, at 1390 ½.
I am risking two e-mini S&P points to potentially make eight e-mini S&P Points. That means my risk reward ratio on this potential trade is four to one.
You can see that price did not immediately retest the down-sloping sliding parallel and after each bar closed, I ran my cursor over the sliding parallel to see where price would intersect with it. Note that I eventually had to lower my limit sell order by one e-mini S&P futures tick to 1398 ¼. Price then climbed back to test the down-sloping sliding parallel, getting me short at 1398 ¼. But price closed near its lows, back below both the sliding parallel and the down-sloping red upper median line parallel. This close again showed me that the sellers were in control of this market.
Once my price printed, I checked my electronic platform’s audit trail, making sure the exchange said my limit sell order was filled and then I checked my initial stop loss order was in the market and working. Then I entered my profit order, my limit buy order, at 1390 ½.
More in Part 4 tomorrow.
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