JPMorgan (JPM) has broken out to new highs this week, but sits near a perilous technical level, writ...
How to Find the Correct Place to Stand and Profit from the Lever that Moves the Market (Part 3)
07/17/2008 12:00 am EST
Now let's zoom in closer and see what type of money management and risk reward needs to be applied to make this high probability set up work [and remember, this works in the bond market, it's made for the bond market and I don't even bother to attempt to try it in other markets, because I have much better entry techniques in those markets. This entry exploits a formation I have been watching and trading in the bond market for over 15 years.]:
When the second mirror bar forms, it closes higher. It also re-tests the up sloping lower blue Median Line Parallel.
I want to buy the re-test of the up sloping Lower Median Line Parallel at 115 14/32.
My initial stop loss order is two ticks [two full 32nds, not two ? ticks or 2/64ths] below 115 12/32, the Swing Low at Pivot C at 115 10/32.
My profit target on this trade is at the test of the up sloping Median Line, which is at 116 03/32. Here's a very important point: On this particular trade, the Median Line was narrow enough that it was realistic for me to put my target at the Median Line; on many corner trades in the bonds, I am risking 3-5 full ticks to make 6-8 ticks and I will simply be trying to lock profits in at that 6 to 8 tick area because there is no structure or target to use. I am fully aware before each trade that this is a trade entry that is made for quick profits and has a high probability of success IF I don't try to hold the position too long-so the mantra for this trade is 'Get in, get out, nobody gets hurt!'
The risk reward on this particular corner trade is quite high relative to the average corner trade. I am risking four ticks and I am trying to make 21 ticks, which gives me a risk reward ratio of better than five to one. As I mentioned earlier, because it is such a high probability trade entry once you master it, I often take corner trades with a risk reward a bit below two to one.
Let's see how if the market let's me in this corner trade:
Price did come back to test the up sloping Lower Median Line Parallel and my limit buy order at 115 14/32 was filled. I always work both my limit buy orders and my initial stop loss orders at the same time, to limit any potential losses should unexpected news come out while my limit buy order is being filled. Once filled, I enter my limit sell order at 116 03/32. I then double check my orders one last time to make sure I have the position I 'think' I have, that my stop loss order IS in the market working to protect me and that my position size and all my orders are for the same number of contracts.
More in part 4 tomorrow.
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