Our bias is neutral/bearish on S&P 500 and crude oil, and bullish gold, writes Bill Baruch, Pres...
How to Make Money While the Train is Refueling! (Part 5)
06/06/2008 12:00 am EST
I note that price has now traded past the energy point by several bars and so as it trades lower, it will run into the support of the blue up-sloping first warning line.
Because this is an up-sloping warning line, the support moves higher as time or space moves price to the right. If this support line holds, my profits will quickly erode unless I am out of this trade soon. I measure where price would intersect with the up-sloping blue warning line and change my profit order to 1391.
Two bars later, price tests the blue up-sloping warning line and my profit order is filled. I check that my limit buy order is filled and that I bought and sold an equal number of contracts. Then I check that I am working no further orders and that my electronic platform shows my position as flat.
I got short this market at 1398 - and my profit order was filled at 1391, giving me a profit of seven - e-mini S&P points, which is $362 - per contract before brokerage. Let's see what the e-mini S&P futures did the rest of the day:
As you can see, price retested the blue up-sloping warning line one more time and then price climbed back higher, right back into the middle of the wide trading range. The keys to making a nice profit in this wide range were:
- Recognizing that though price had been in a strong down trend, its behavior was changing.
- Waiting for price to show me a sign of strength or weakness. Let the market tell you if the buyers or sellers are in control.
- Once I saw a sign of weakness, I looked for a high probability trade entry set up that I use on a regular basis-one that is easy for me to recognize.
- Once the market let me get short, it was essential for me to keep track of my risk and continually search for ways to 'box in' profits, in case price ran out of down side directional energy.
- When price traded to the right of my original price target-the energy point-I recognized price would find support against an up-sloping warning line and so I aggressively moved my profit target.
- Finally, attention to detail throughout the entire trade process, from planning the trade to checking orders after the trade was closed, made certain I didn't give away hard earned money on a mistake.
I hope you find this range trading example both interesting and informative. The market is not always in a trending mode, but that doesn't mean there isn't plenty of money to be made if you know what to look for and how to execute your trade plan.
I wish you all good trading.
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