Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
Seeing Through the Eyes of a Professional Trader (Part 4)
12/11/2008 12:01 am EST
Are there break out traders that make money when you look at their accounts over long periods of time? One of the most famous break out traders is Richard Dennis. You may remember he taught about 15 “turtles” to trade a specific break out methodology in the mid-1980’s. Rich is still trading, and he’s made quite a lot of money in the markets over the years. But if you know anything about him, you also know that his P&L swings are infamously large! This trading style is not for the meek of heart!
Let’s take a look at how I traded this same market, during the same period, using my tools. Come take a look through my eyes at my own trading:
I pull back and take a look at the market context of the current trading range, or “rolling chop.” I add in a blue up sloping Median Line, and when I notice that price has touched the Median Line from down below three times and left two lows that seem to be the same distance from the sloped Median Line, I add in a line with the same slope that connects those lines—a Sliding Parallel.
And once I add the Sliding Parallel, I note with interest that it is about half way between the Median Line and the lower Median Line parallel. In the past, I haven’t paid much attention to the half way point between these lines, but a few of the more accomplished traders in my mentoring program have shown me, with their own charts and hard work, that there are times when this area has real merit.
I think I have marked the area where price should run out of up side directional energy (the Median Line) and where it should run out of down side directional energy (the Sliding Parallel).Now what am I going to do with all these lines?
More in Part 5 tomorrow…
I wish you all good trading!
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