Mentoring - Home

This lesson is done with commodity charts
But this technique works with any market
Stocks, Commodities, Forex, etc.

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THE BEST TRADING LESSON EVER

I don't know if this will be the best trading lesson ever
But as I start to write this, thats what comes to mind

So let's go with it

:-)

I think this trading technique has alot of potential
I hope that you agree

Is that enough of an intro yet or keep going?

Keep going - O.K. - I was hoping you'd say that
(Hey we have to have a little fun right?)

I started to name this writeup
The trade setup we've all been waiting for

The reason I mention that, is because, I really think this is that good

I hope you enjoy and profit from - The Best Trading Lesson Ever

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THE SETUP
The market has to be in a strong trend
We'll use the 20 day simple moving average to tell trend
The stronger up or down the moving average the better

UPTREND
In an uptrend we wait for 3 lower highs

Then the next day we buy if the high is traded above

If we don't get in the trade on the first try

And the market puts in 4 lower highs
And everything still looks good

Then we try the trade again
We keep trying to enter the trade until we get filled
When we finally get filled
The stop if wrong is just below the low of the bar that we entered above

DOWNTRENDS
We wait for 3 higher lows
And then everything the same, only on the downside

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Here's a recent chart of Gold in a sharp decline
You can see that after 3 or so days of higher lows
The strong downtrend continued

It is not as easy to see on a regular bar chart
So when looking for this trade setup it is better to use candlesticks

This is the same chart of Gold with candlesticks
The chart is in a downtrend
3 or so bars up - sell the low = a good entry point

Here is a chart of Silver showing the same pattern

Here's a current bullish setup in Live Cattle

This is a picture perfect setup

#1 - A strong uptrend
#2 - A stair step decline making lower highs and lower lows
#3 - So we will put a buy stop just above the high
#4 - And if the trade is entered we will put a stop just below current low

If Live Cattle doesn't take out the high and get us in the trade
Then we will see what the next bar looks like
And if the setup still looks good, try it again

We will keep trying to get into the trade as long as it looks valid

When the trade is filled, then we will put in our stop just below the low

Obviously if Cattle started collapsing, then it's not a good setup anymore

Notice how before and after April 19 on the above Live Cattle chart
The market dropped around 3 bars
And that would have been a good entry point into the larger uptrend

Also the minor decline forms a bull flag pattern

On the decline before April 19 the low day formed a hammer

I have seen people taking about a hammer trading system
And I don't know for sure
But I think the pattern just before April 19 is the hammer trading system
Using the hammer candlestick pattern, with the trend, as a buy signal

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A LATE UPDATE

Here is an update on the Cattle trade setup above
The write up above was done exactly where the Cattle chart was at the time

So what we expected to happen -happened
So this isn't something that works in hindsite
But can be traded with confidence in real time

Right after May 17 Live Cattle made an inside bar
In the daily newsletter I recommended buying above the high

The trade entry point worked perfect
And Live Cattle traded about 10 points higher

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A FEW MORE THINGS

The Color of the candlesticks are a big help with this trade

The green bars are bullish days
The red bars are bearish days

On the Live Cattle chart above
The green bars show the bulls have control of this chart into the rally high
The red bars show bears have taken control of the last few bars
This equals a buying opportunity

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BARS THAT HELP CONFIRM A LOW (OR HIGH) IS IN

Often after a 3 or so bar correction against the main trend
The market will put in some type of reversal bar

That will add confidence when taking the trade

This is not something that has to happen to take the trade
But it is nice to see when it does happen

Here are a few bars to look for signaling a low

#1 - A Doji candlestick
#2 - A hammer candlestick
#3 - A narrow range bar
#4 - An inside bar
#5 - Any other type of bar that you use for a indication of a reversal

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QUESTIONS AND ANSWERS

Q - Why the 20 day simple moving averages
A - It can be any moving average, or no moving average, just the chart will do

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Q - Does this work all the time
A - Nothing does - thats why we have to use a close stop if wrong

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Q - How do I figure out if the trade is good for me to use
A - Paper trade it only, until you can see if it is something for you

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TRICKS OF THE TRADE

This can be used for short term trades - taking quick profits
Or as an entry point into a larger trend trade
Or both

One idea would be to start out taking the small profits each time
(If you get them - there is never any guarantee of profits in this business)

Then if you get enough short term quick profits
Start taking the trade with 2 contracts
Use 1 contract for a quick profit and hold the other contract for a larger move

How you want to use this depends on your trading style and what works for you

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SO THERE IT IS

So thats the basic idea behind this trade setup
We will keep working on it and improving on it
I will keep writing about it in the daily newsletter
And hopefully it will be a winning trade setup for us

Mentoring - Home

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Thanks !

Jim    :-)