thalestrader

Hi Folks, I meant to post this GBPUSD last night, but after I snapped the first picture I got involved in putting together the "double bottom" posts and forgot about the GBPUSD. At any rate, last night GBPUSD buy point was 1.5990, targeting 1.6133 or so. Best Wishes, Thales

You are confused! Go back and re-read my posts and the IBD articles. These are discussions of a "double bottom" pattern that signifies long opportunities, not short opportunities. All of the trend lines in the charts I posted in those examples represent buy points. The discussion of this pattern originated in my response in post #382 to Forrest's chart that he posted of the GBPJPY in post #380. The posts relevant to this discussion are 380, 382, 384, 388, 391, 395-396. On a side note concerning the short trades you posted, you note that one would have been profitable and the other not. The profitable trade was an example of shorting in a downtrend. That is generally a good idea. The unprofitable short trade (which I was using as an example of a profitable long trade off of a double bottom pattern) was an example of shorting in an uptrend. That is generally a bad idea. Best Wishes, Thales

Another IBD Double Bottom Article: I have found William O'Neill's Books very helpful. Investor's Corner: Double-Bottom Base Takes Practice To Spot By PAUL WHITFIELDPosted 03/10/2008 03:00 AM ET With its sometimes raggedy appearance, the double-bottom base can take some practice to recognize. The price movements within the double-bottom base can be more severe than in a cup or saucer base. The double bottom forms a W-like shape -- going down, then up, then down again and finally up while clearing its buy point. The middle point 15f the W should be lower than the left peak. Successful examples of this pattern show that middle point 12ies in the upper half of the base. The second low should undercut the first low, serving as a shakeout. When the stock clears the ideal buy point, which is the middle peak plus 10 cents, volume should be at least 50% higher than average. Some investors look at this pattern and wonder what is happening. Because market watchers often pin a cause on every effect, many investors look for hidden meaning in the down-up-down-up movement. Don't worry over it. As William O'Neil's 2004 book "The Successful Investor" pointed out, "It's not important to understand what's causing a pattern to look a certain way or why a stock is strong one day and weak another. In many cases, you simply aren't going to know. And even when you think you know, it may be something else entirely. "The only thing that's important is that you recognize whether a pattern is strong or weak, normal or abnormal. You'll never know all the answers, and it's not worth trying to find them out." In July, Aecom Technology ACM began to decline after hitting a high at 29.24 (point 1). It was beginning work on its first base since its initial public offering in May. It corrected 17% as it formed the first low of a double-bottom base (point 2). The stock rallied, forming what proved to be the middle peak of the W (point 3). Then it turned south and fell to a new low within the base (point 4). It now had corrected 21% from its high -- an acceptably moderate dip. The stock rallied about 21% over the next six sessions, but it still had not cleared the buy point. Sometimes a double-bottom will form a handle, and that is what happened here (point 5). The new buy point 14 the handle was 27.87. Some stocks will break out in a stuttering, or delayed fashion. Aecom cleared the handle on modestly higher volume (point 6), then moved more convincingly, rising sharply on huge trade three sessions later (point 7). It went on to a 37% gain over the next four weeks from the buy point.

Hi Forrest, This pattern is a form of a "double bottom." Here is an article from Investors.com (IBD): Investors.com - Double Bottom Shakes Out Weak Holders I do not like the chart example that was used for this article, however. I have attached some of my own. I do not know why IBD's editors selected the example that they did, because if you ask me, their example is nothing at all. This is an easy pattern to spot. The article makes the point of proportion between the lows. I agree. Read the article, and look at the examples I post here. Do not look for anything ancillary to the action between the two lows. This pattern can occur after a decine, but it can also occur as a basing pattern in the middle of an uptrend. One of the charts I posted is of the Dow Industrials. The July bottom is an excellent example of this pattern occurring as a basing pattern within an uptrend. It can also be seen in inverse at tops, though my eye always seems to catch it better as a bottom than at tops. Best Wishes, Thales

Hi Gabe, Looks like an excellent trade, and your strategy seems sound in theory. Just be sure that you use S/R to determine your entries and exits, and not anbitrarily selected money management regime. In other words, adjust your money management to the market, rather than expecting the market to bend to your desired money management outcome. Now, a question, and tell the truth: Were you watching your chart after entry while waiting for the rally to your first profit limit? Or did you take a nap so that you wouldn't be tempted to exit early? Best Wishes, Thales

Hi Forrest, Do you trade one of those FXCM Microlot accounts? If so, you can split even a 2k position in half and take 1/2 at one profit target and hold a second for a larger move. 60 ticks is a lot of profit to let run back to a loss (even a 2 tick loss). However, if I had to choose between you letting a profit run back to break even or Gabe who cuts every trade at 7 ticks profit, I'd go with you (right Gabe?). By the way, what was your entry? It seems that price fell from a fairly well defined resistance zone, and taking some profit on a long would have been justified at those levels (143.40 +/-). Best Wishes, Thales

The pattern would be a form of Sperandeo's 2B. Strictly speaking, a 2B is an opportunity to fade and extreme S/R level whereby you watch for price to exceed a prior high/low and then quickly reverse. The way I read Sperandeo, his entry point would be the prior high/low, i.e. in this case, as price trades back through the prior low, go long. I was suggesting a later entry, i.e. go long when price breaks above the high of the little rally that preceded the lower low. You have to decide which way you wish to trade it (or if you wish to trade it at all). Sperandeo's approach offers a much smaller stop loss, and thus allows for a larger position size than would my entry with its relatively large initial risk in comparison. My experience is that waiting to buy the break of the high provides a higher probability to first profit objective, where as Sperandeo's entry, especially on intraday trades, will typically result on a high losing percentage. However, winning percentage is no important so long as you are trading for (and allowing price to achieve) profit targets greater than your initial risk. In other words, either entry should over the long term prove generally profitable assuming the use of proper money management (proper use of stop loss, position size, and letting profits run to targets when price is able to do so). Using proper position sizing, I would not be surprised to find that Sperandeo's more agressive approach, though losing more often, may very well generate significantly greater profits than mine. All this to say that yes, this pattern is a form of 2B, but the shape of this particular pattern makes it a special case of the 2B. Look at the 5 minute NQ today. I think I may have spied one on the qqqq today, so it should be on the NQ. Best Wishes, Thales

Hi Forrest, Three things: 1) You did your job by selecting an entry, a stop loss, and a profit objective. Your stop loss did its job by getting you out of the position and protecting our capital when price action threatened to move against you. You should feel pretty good about yourself - many who try this game (especially retail forex traders) never learn to place a stop loss and blow out account after account. You have positioned yourself to be among the small percentage of people who try this trading game and actually succeed. 2) Study the pattern price action traces out at the lows: A low, followed by a reaction high, followed by a slightly lower low that quickly reverses and breaks the reaction high. This is a very common pattern on all markets - futures, individual stocks, currencies, etc. You would serve yourself well to study it and commit it to memory. As others instruments repeat this pattern, you will notice them more and more. The break above that reaction high would have offered you a low risk, high probability entry for a trade back to the high prior to the initial sell off that stopped you out. 2) Have you thought about using a chart with your black OHLC bars on a white background with no grid? You might find that S/R is easier to identify with a more clean and crisp contrast. I find your charts terribly difficult to view. Best Wishes, Thales

Hi Folks, This is not a Real Time Charts post. I receive dozens of SPAM solicitations from various trading services (as do most of you, I'm sure). Some I receive over and over again (no matter how many times I click "unsubscribe" and how many times I change my email address, the offers keep coming). These I simply delete, as I have seen them before. If something is new, I will at least open the email. And when one of them offers a video of a "live trade example," well, how could I pass it up!? Tonight I received an email offering a live forex trading signal service. I watched the video showing not a "live trade" but a recap of a supposed trade that the Guru/Coach/Mentor had made himself earlier that day. He made a profit of 68.3 ticks/pips on a 100k position for a profit of $683 USD. And to prove it to us, the would-be subscribers to this trading service, he opened his closed positions tab in his trading platform. Lo and behold, there it was - indisputable proof of the would-be Guru's trading prowess for all the would-be guruettes to salivate over ("all those pips could be mine! mine! all mine! Sign me up!). What our earstwhile "Guru" failed to notice in displaying his "profit" is that in his video capture of his trading platform, clearly visible at the bottom of the screen, was the server ID window (anyone familar with FXCM's trading station will recognize it here). The server connection used by this "Guru" for his "trading" was [Demo: U100D5]. Some "Guru"! Lest there be any doubt, I also included a close-up of his Demo server ID and the ID window on the micro account my daughter and I use. I had a good laugh over this "Guru's" video of his "profitable live trade example." Best Wishes, Thales

Hi Taq, There is certainly no need to apologize. I understood what you meant, and I was in no way offended. Your English is fine. If you want to see something incomprehensible, you ought to try to read my Hindi! I hope to see you continue to share your charts with us here. Best Wishes, Thales

I haven't smiled in days, but that made me not only smile but laugh out loud. Imagine that ... I've been trading improperly all this time! Reminds me of something Larry Hite said in his Market Wizards interview - something to the effect that "it is amazing how much money you can make from being wrong." Best Wishes, Thales PS Please do keep posting to the thread. Your EURJPY example was excellent.

Hi Folks, I did not intend to check in today, but I wanted to make a coupl of quick points. First, the 1.5714 should read 1.5722. Last night I made a quick note on the GBPUSD chart that implied a rally may have been imminent. The first chart is the market as it looked when I went to bed. The second chart is a shot from soon after I woke this morning. The third chart I just took now because I wanted to adjust the arrows drawn the night before and also label the Low, High, Higher Low that created the long entry opportunity. Price does indeed show you where it is going before it gets there. Best Wishes, Thales

Hi Folks, Just a quick post to update the progress of the "Pounding of the Pound" trades posted last week. GBPUSD: The GBPUSD has fallen to within pips of anticipated support at 1.5800. That may be enough to exhaust the Pound sellers so as to allow for a bounce back to breakdown levels (1.5914, and then the 1.6100 area would be a perfect level to which price might rise.) A break of 1.5800 would likely lead to a drop to 1.5714 area. Below 1.5714, there are a few areas of potential support, most notably between 1.50-1.5100. However, I would anticipate that any bounce form those levels ultimately to resolve themselves to the downside for a test of 1.35. A break of 1.3500 might very well precipitate a drop to par. GBPJPY: Last week I posted that GBPJPY was about to confirm what some call a "Double Top." The breakdown point was 146.74, and the target for this pattern is approximately 1600 ticks/pips/points or 16 handles (however you wish to call it, it would be an enormous move. Since that post, the GBPJPY has hit a low of 139.70, or 705 ticks, or nearly 50% of the projected move. I have noted relevant lower levels on the chart. I think the potential for this drop is considerably more than the 1600 ticks projected using the measured move off the double top. But 1600 is a minimum projection. I would like to see 139.00 +/- reached before a rally commences; but having dropped so far so fast, a snap back to test breakdown levels (143.00, 146.75) may occur at any time. Failure to rally to breakdown levels might mean an exceedingly quick fulfillment of the 1600 tick target, and an overshoot to the downside a probability. I will check in later in the week to update the charts. Best Wishes, Thales

Hi Taq, I know that breakouts and the traders who trade them are often held suspect by the general trading community (and I presume the general trading community includes the majority of traders, and we know how successful the majority of traders are) but I have found that life is much more simple and pleasant when I respect the breakout. Best Wishes, Thales PS Nice trade on the EURJPY, by the way!

Hi Folks, Due to a family illness, I will not be able to post and respond regularly over the next few weeks. I'll check in when I am able. Best Wishes, Thales

Well, I would not have thought that the first 250 ticks were imminent, but the market is going to do whatever it is that the market wants to do. Best Wishes, Thales

Hi Forrest, I have to admit that I spent a bit of time with your charts, and to tell you the truth, I have a hard time looking at them and seeing anything. If you could post future charts on a white back ground with dark candles/bars, text, and no grid, I would have an easier time answering you more quickly. In your first chart, I am not sure what you mean by "pbs." As far as the areas where you suggest various entries, nothing really jumps out at me as a favoable opportunity, though that may very well have more to do with the chart appearance and presentation than the price action depicted on the charts. Perhaps zooming in a luttle closer (increase the bar spacing) would also help. I'm sorry I couldn't do better. Best Wishes, Thales

How are you doing, Gabe? Best Wishes, Thales

Hi Folks, Here is how things look soon after the NY close five or take an hour or so for dinner. Still holding the three positions short. Total cumulative ticks open profit is just over +400. That of course will fluctuate, and I would not be surprised if the open trade equity is not sharply reduced by a bounce/correction/rally after the smash the pound took against the US Dollar today. Will continue to hold short against a margin call and will monitor for opportunities where additional shorts may be added. Best Wishes, Thales

I think that if I were trading the GBPJPY that I would probably try that short around that level as well. I never mind selling a break to new lows or buying a break to new highs so long as I have a stop loss in place and a profit target equal to or greater than my initial risk. Best Wishes, Thales

Hi Gabe, You might find it easier if you were to focus on breakouts that are trend continuation BO's rather than trying to trade countertrend BO's. For example, let us look at the potential long trade on the GBPJPY that you posted above. Now, I do not want to discourage you from taking the trade. The Pound has been pounded today, and I would expect that at least a temporary bottom would get hammered out here from which price would retrace some portion of the recent decline. Therefore, you trade may very well trigger and proceed to reach one or both of your profit targets. That being said, a look at the daily chart displays a rather large, fairly clear pattern that, for those who fancy these sort of things, would identify as a "double top." Price today has pierced the intervening low between the two highs that constitute the respective "tops." Now, for those who fancy these patterns, there is a common "rule of thumb" regarding price projections, i.e. a guideline for measuring the potential extent of a continued drop below the pattern low. That measurement for this particular pattern looks to identify a potential downside target of about 1500 ticks. Now, there is nothing to guarantee that move will occur. In fact, your long trade might trigger and the ensuing rallymay prove to be a reversal of the recent down trend that launches the GBPJPY back to new recovery highs. If the decline does continue, it will no doubt be punctuated by some rather sharp, fast, and furious rallies that will attempt to shake weaker shorts out of their positions. But, right now, at this moment, the short side has momentum and gravity on its side. So, my question to you is this: Why do you identify the long trade that you do, but not also not the potential for a continuation of today's decline? And a comment on your use of Brooks's material: You may consider that for breakouts, you need to be certain that you are identifying breakout points that are actual swing highs/lows, and not merely the high/low bar of an ongoing swing. Best Wishes, Thales

Well said. Best Wishes, Thales

Hi Gabe, While real time (including ahead of time) is always preferred since reading price action in real time is what will help us learn to trade more effectively, I have no objection to posting closed trades as well. I do have a quation about your trade. You say in the annotation on your chart that the basis for the trad was a stop order below the swing high. Do you mean below the swing low? And if so, which bar are you identifying as having establishes a swing low? Best Wishes, Thales

I forgot to add this chart with additional nearby levels noted. Best Wishes, Thales

Hi Folks, Here is the weekly GBPUSD chart showing price action subsequent to when I first posted it here last week. Two trendlines are shown. Both relevant trendlines have been violated with today's preice action. At this point, there is still some nearby potential support, so while the seed for a decent long term short has been planted, we are not guaranteed of any "green shoots," and it we do get "green shoots," we all know that such shoots do not always survive to maturity. I do wish that my daughter had been here for the break below 1.6100. Well, perhaps the break will stick until she gets home from school. Best Wishes, Thales