Trend Line Congestion
Trend line congestion and we're winding up for a breakout. Second day in a row with below average volume and below average range - not surprising after Tuesday's rally.
Trend Line Congestion Zone (Emini 81 minute)
The Emini chart above shows we're in a congestion zone (white paint bars). This means we're both above the rising trend line and below the falling trend line. Breakouts out of congestion usually lead to large moves and typically go in the direction of the trend preceding congestion (in this case up).
Another sign of strength is that the Emini bounced off the 1,360 level today, which was the high of the last push up (dotted line). Resistance has now become support.
Hilbert Sine Wave (Emini daily)
On a daily time frame we've also broken above the Hilbert Sine Wave cycle high (red dot in the chart above). We're continuing to hold above this level, which is good news for a long trend move. However, the last time this happened the Emini failed to follow through and ended up testing the lows around 1,260.
Tomorrow's employment numbers will no doubt provide the fundamental news required to kick a break out move into action. I'm looking for the Emini to break above 1,380 into the next leg up but will stay vigilant for large volume profit taking on the news.
Emini-Watch Contest
Emini-Watch passed 500 subscribers this week! A big thank you to all of you for your support. I thought this might be an appropriate time to run a little contest. All you have to do is answer a couple of simple questions - the winner will receive a copy of Roy Kelly's latest book, valued at $164.
Roy Kelly is a successful trader and runs the TrendPro.com website. In the book he lays out his cycle trading methodology in detail - if you like Emini-Watch, you'll like Roy Kelly. Click on the button below to enter or follow this contest link.
P.S. Let's say I'm really lucky and get 5% of the subscribers to enter the contest - that means you've got a 1-in-25 chance of winning! Go on, give it a go.
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Trend Line Not Broken Yet
Trend line yet to be broken. The Emini closed down 10.75 points at 1,319.00 on Friday. The chart below shows the upper trend line (red) is yet to be broken. Until it is, the Emini is technically still in a down trend.
Trend Lines (Emini 27 minute)
I got my pants kicked on Friday. I was watching the consolidation zone (white bars) around 1,330 and took a long trade when I saw a trend line break (up) in a lower time frame. The Emini promptly turned around and dived.
This was one of my discretionary swing trades and not system based. Most of my swing trading is based on a variation of the Better TRIN Oscillator. Anyway, I was stopped out for a 15 point loss - ouch. Luckily I was not trading size on this discretionary trade.
Oscillators (Emini daily)
What makes this trade even more stupid is that none of my swing trading oscillators have turned up. The chart above shows the TRIN, Put Call Ratio and Smart Money oscillators all pointing down. The Hilbert Sine Wave (daily) is also turned down.
My last 2 discretionary trades have been nice winners. I got cocky on this trade and was focussed too heavily on one market view. So live and learn.
The website was upgraded to the latest version of WordPress over the weekend. Please bear with me, there are still some glitches. Other news, Emini-Watch should pass a significant milestone this week. As a special thank you, I'm giving away a prize to one lucky subscriber. Details later this week.
Good luck with your Emini trading.
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Trend Lines and Entry Signals
Trend lines article today. Got an email from Jeff asking "For day trading you mentioned you need confirmation with multiple time frames - can you give an example?"
The Better Trend Lines indicator shows Congestion Zones with white paint bars. Breakouts from Congestion Zones usually result in large moves - the trick is avoiding false breakouts and getting the direction of the trade right. I use 3 things to filter the trades and increase the accuracy of the signals:
- The breakout is usually in the direction of the trend preceding the consolidation
- I always check the trend direction of the next higher time frame, and
- Look for confirmation from volume patterns using the Better Volume Indicator
The example charts below should help illustrate these points. It shows Friday's Emini action and a short trade that resulted in a 43 point intra-day move!
Trend Lines (Emini 2,097 Tick)
First the higher time frame chart. The highest time frame day trading chart I use is the 2,097 tick Emini chart. In this time frame we've got a Consolidation Zone at the beginning of the day.
The Emini was falling from a high of 1,336 before it entered a Consolidation phase and so the likelihood is that it would resume the down trend when it broke out of this Zone.
The break down below the lower trend line was a Low Churn bar. Low Churn bars (with a low close) often confirm the start of down trends. You will see this pattern repeated again and again, in all time frames, using the Better Volume Indicator.
Trend Lines (Emini 233 Tick)
Now the lower time frame chart. The lowest time frame I use day trading is 233 tick and this is for more precise entry signals. The first point to note is that this consolidation is a complex ABCD retracement pattern (labeled on the chart).
Remember the market is always trying to fool you, shake you out of your trade. The first Consolidation Zone broke to the upside - you wouldn't take this trade because it was against the higher time frame trend.
The second Consolidation Zone broke to the downside and was the right entry point, but just in case you missed that there was a third Consolidation Zone break down that really got going quickly.
Now, how would the Better Volume Indicator help you determine what was really going on. This is the real secret - I've never seen anyone talk about this stuff before.
- Leading into pivot B we have a Volume Climax bar (red) showing short covering as the 1,321 level is broken
- Then at pivot B we have a High Volume Churn bar (green) showing new sellers are entering the market and stopping price move up
- Right after pivot B we have a Low Churn bar (white) - down trends almost always start with a Low Churn bar
- Leading into pivot D we have another Volume Climax bar (red) with very high volume - this is a blow off move and professionals are getting short as amateurs think a new uptrend is starting
- Next we have a Low Churn up bar (white) which is a final weak push up and leads to the trend line break down
- Notice again the start of the down trend is a Low Churn down bar (white)
I'll be updating my Better Volume page soon and adding a video I've recorded recently. Although the Better Volume Indicator works on any time frame or market, I find these patterns repeating again and again on intra-day tick bar charts.
Check out the Better Trend Line video here. Good luck with your Emini trading.
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Trend Lines and Congestion Zones
Two trend line congestion zone examples today. Yesterday's article talked about the unconvincing break up to 1,370 and possible cycle down trend kicking in below 1,360. Well the Emini spent the morning unable to break 1,370 and consolidated above 1,363.
Trend Line Congestion Zone (Emini 2,097 tick)
The Emini eventually broke below 1,363 and pushed down to 1,348. In the chart above, the congestion zone bars are painted white using the Better Trend Line indicator. This is a great tool for getting on board strong trend moves, like today.
The chart below shows the Emini has now re-entered the Trend Line congestion zone on a daily chart.
Trend Line Congestion Zone (Emini daily)
Where to from here? I'm not convinced the Emini is now headed down - even though the 135 minute down cycle is now confirmed.
We saw a lot of buying volume enter the market at 1,347. This level was tested again in the late afternoon and again a large amount of buying volume entered at 1,348.
It's possible we're going to have another attempt at breaking the down trend line - remember holidays (President's Day on Monday) are usually bullish. But we'll need large volume to break the down trend line convincingly.
FYI I'm getting on a plane to go snowboarding in Japan today. I'll still be trading and posting on the blog but maybe less consistently. Good luck with your Emini trading.
Tuesday 12 February 2008Trend Line Holds, For Now
Long term trend line holds - for now. The Emini gapped up in the morning but couldn't break 1,365. This level is both where the Emini meets the long term down trend line and the start of the break away gap of 5 days ago. The Emini also made a long-legged doji candlestick pattern today. See the chart below.
Trend Lines (Emini daily)
Although the Emini couldn't make it through the down trend line today, I think it will try again. We had large buying volume in the last hour of the day that saw the Emini bounce at 1,340. I'm looking for a low volume test of the 1,340 level from which the next assault could start.
Volume Indicator (Emini 15 minute)
You can read more about the free Better Volume Indicator here or watch the Better Trend Line video here. Good luck with your Emini trading.
Tuesday 5 February 2008Re-entry Using Trend Lines, Volume and Hilbert Sine Wave
Trend lines, volume climax and Hilbert Sine Wave charts today that show 3 different ways to re-enter a strongly trending market. I was lucky and got short in after hours yesterday at 1,379 using the Better TRIN Indicator System. Most day traders woke up to a 20 point gap down in the Emini. So how could you re-enter?
My favorite leading indicators are trend lines, volume and the Hilbert Sine Wave. The 3 charts below show how they signaled short re-entry points.
Trend Line Re-Entry (Emini 699 tick)
Volume Climax Re-Entry (Emini 2,097 tick)
Hilbert Sine Wave Re-Entry (Emini 2,097 tick)
Trend lines and Congestion zones gave the least number of signals but were the most accurate (i.e. least amount of "heat" or draw down). Volume climax gave the most number of signals are tended to lead price action - volume is truly a leading indicator. Lastly, the Hilbert Sine Wave signals were mixed, with one early, one on time and one late. This shows that the Hilbert Sine Wave works best on range bound conditions.
The secret is to use non-correlated indicators for signals, so using 2 or 3 of the above would give you the best mix of accuracy and number of signals.
If you're interested in learning about the automatic trend line indicator I use and Congestion zones, check out the trend line video I recently uploaded.
Good luck with your Emini trading.
Friday 18 January 2008Emini - Signs of Strength
The Emini closed down 14.50 points today and the news all around is bad. We're now down 18% from the October high. But there are signs of strength.
I am not suggesting that the Emini will rally in a straight line up from here. The markets are shut on Monday and this will give the "man in the street" more time to worry about how badly his portfolio is doing. He'll probably decide to dump and run, giving the professionals good buying opportunities on Tuesday and Wednesday.
Then at some point we should get a short covering rally. But this will not last and we will come back to test the lows of Friday and early next week. Once we've done that and everyone is convinced that the markets will fall further, then we'll start to rally.
I'm sticking my neck out by painting this possible scenario. Remember, trade what you see, not what you think. Anyway, on to the signs of strength:
- Volume Climax yesterday followed by Stopping Volume today on the Dow, S&P500, NASDAQ and Russell.
- The adjusted Trading Index (TRIN) was +14 today, showing net buying despite the indices being down - a bullish divergence.
- Bond market rallying and the Emini valuation against Bonds is very attractive now.
Emini Basing Pattern
Good luck with your Emini trading.
Wednesday 16 January 2008Possible Support at Long Term Emini Trend Line
Possible support at long term Emini trend line. The weekly Emini chart below shows a long term trend line I've added by hand. It connects the April 2005, October 2005 and July 2006 lows. You can read more about the bar coloring and auto-trend lines here.
Long Term Emini Trend Line
The best sign that this trend line will act as support is to see confirming volume patterns. We usually see exhaustion or climax volume followed by a low volume test of the lows.
At 3.2 million contracts traded, today's Emini volume was no doubt high. But was it enough to signal exhaustion volume? The chart below shows the daily Emini volume with the Better Volume indicator added.
Emini and Exhaustion Volume
Update on the Better TRIN System. We closed out the long trade after the close on Tuesday for a loss of 21 points. All part of the game with system trading.
Good luck with your Emini trading.
Monday 14 January 2008Emini Trend Lines - Triangle Consolidation
Emini consolidating between 2 trend lines. We closed up 12.75 points at 1,420.50 today. Both range and volume were relatively small at 13.50 points and 1.5 million contracts respectively.
Emini Trend Lines: Triangle Consolidation
The 81 minute Emini chart above shows the triangle consolidation, with resistance at 1,435 and support at 1,415. The trend lines are drawn automatically using TradeStation EasyLanguage. The Emini bars are colored red in an uptrend, green in a downtrend and white when in consolidation.
Above the 1,435 level we also have the gap left over from the 4 January decline. If we get above 1,435 the next resistance point will be this gap between 1,443 and 1,449.
My TRIN oscillator is still trending up and the Better TRIN System is still holding a long position entered at 1,411. Good luck with your Emini trading.
Friday 28 December 2007Emini Trend Line Consolidation
Emini trend line consolidation. The Emini closed down 4.25 points at 1,485.25 Friday on very light volume. The Emini has now consolidated between the upper and lower trend lines. Which way will it break?
Emini Trend Line Consolidation (daily bars)
The chart above has the trend lines drawn automatically by TradeStation. Breaks above a falling trend line are colored red and breaks below a rising trend line are colored green. When the Emini consolidates between rising and falling trend lines the bars are colored white - a typical triangle consolidation if you like. We now have resistance at 1,520 and support at 1,470, last Friday's break away gap level.
Bonds Trend Line Consolidation (daily bars)
The chart above shows the Bond market is in the same position as the Emini - consolidating between trend lines. In addition I've marked what the Bond market was doing 20 trading days ago with the vertical blue line.
The Bond market tends to lead the Emini with turning points having a delay of 20 days typically. This article on Bond market analysis describes the phenomenon and more Bond market examples are shown here.
The Bond market topped out just over 20 days ago, tested that extreme level and then fell away sharply. I am not suggesting that the Emini will do exactly the same, but the direction over the next week may follow the Bond market - down. In addition:
- The 135 minute cycle is down
- TRIN, Put-Call Ratio and Smart Money oscillators have turned down
- Commitment of Traders Oscillator near over-bought
- US Dollar versus Yen has weakened
- Crude oil near record highs
- 1,475 to 1,485 gap looks like getting filled
Good luck with your trading.
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