How to Make Money While the Train is Refueling! (Part 4)

06/05/2008 12:00 am EST


Timothy Morge


Price traded lower in a near vertical manner leaving very little price structure for me to hide my buy stops above.

Remember, I want my stop orders to be protected by market structure that will draw in limit sell orders-these are areas where other traders are trying to initiate short positions. I caught the train and want to protect my profits-they missed the train and are looking for an area to get on board. If possible, I'll use their orders as a buffer to hide my stop order above.

Price finally leaves double tops and then makes a new low. It isn't the prettiest price structure I can imagine, but it's all I have to work with and with more than four e-mini S&P points in profit at the moment, it's time to try to protect some of the potential profits. At minimum, I cannot let this trade turn into a loser, so the least I can do is move my initial stop loss order to a break even order. But with four points in this trade, I chose to cancel my initial stop loss order and replace it with a stop profit order three e-mini S&P ticks above the double tops, at 1396 ?. If this market turns around, I have now boxed in two e-mini S&P points, which is $100 per contract before brokerage.

Price continued lower until it tested the lower end of what I have marked as the energy coil. It stopped there and formed a new very tight energy coil, because it had expended all its down side energy in the near vertical fall. As it consolidates, it restores energy.

When I see the new energy coil form, I know it is time to reassess my risk profile. I note that the last bar on the chart peeked well above the tight energy coil but then closed back within the energy coil, below the lower half of the bar's range. I cancel my stop profit order above the double tops and put a new stop profit order three ticks above the top of this last bar's high, at 1393 ?. If price is able to climb above this tight energy coil and make a new high, I want to take my profits and run. By moving my stop profit order lower, I have now boxed in four ? e-mini S&P Points or $225 before brokerage.

More in Part 5 tomorrow.

By Tim Morge

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