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Earl:
That's a classic coil. I would at minimum be trying to get short as the
fourth "touch" is occurring.
Here's how I trade that particular coil--
Prices make a fast move lower, breaking the up sloping Major Median Line.
For me, the first and foremost rule now is find a way to get short this
market if I am not already short OR find a way to add to my short position
if I am already short. The re-test of Median Lines once they are "zoomed"
like that is a very high percentage trade--especially if you combine it
with trading coils and trading fib confluences.
When do I suspect the coil is forming? When price has zoomed through the
Median Line, I begin looking for any sign of a coil. The third bar that
closes below the Median Line is a double bottom bar at 1292 1/4. First
there was a wide range bar lower, then a smaller bar continuing lower and
then that third bar was an inside bar making the double bottom at 1292 1/4.
As price makes that low at 1292 1/4 and then begins to rally away, leaving
the potential double bottom, I am thinking: "Hey! Coil???"
Let me back up a few bars to give you a perspective of how I will count it.
Basically, when price made the double bottom mentioned above, I work
backwards to solidify the potential count and high/low I want to use.
So price approaches and touches the Median Line but does not close a bar
below it. Price then leaves a small up bar right at the test of the middle
of the channel I drew in and that entire bar is back above the Median Line
[I have marked that bar with a wingding character, a red dot with a slash
through it]. That bar is the "0" point of the coil as I am going to count
it and I am going to use 1299 as the touch area of the coil.
Price turns lower from the "0" point and makes a low of 1292 1/4. The next
bar is an inside bar with a double bottom at 1292 1/4. As price begins
rallying from that double bottom, I am mentally marking the double bottom
as point "1." Now I look back at the "0" point. It was at 1300. I look at
the fib retracements from the high at 1319 1/4. The 38.2 retrace is at 1302
1/2. Price is currently below the up sloping Median Line and that measures
1298 and rising. Again, I am an aggressive seller because price has zoomed
lower through the Median Line--I want to sell in the area of the Median
Line, so the coil selling is really confluence for me. Add to that the 38.2
retrace, which I would be selling, and you see why I am a willing
aggressive seller here. And this area is a retest and consolidation of the
down sloping middle channel line I drew in from above as well. That's the
"edge" I am selling against--this whole area.
Here's what I do: Once I mark point "1" in at 1292 1/4, I put in an order
to sell at 1299 1/4. That's three ticks below the high of the "0" point. I
could easily have made it 1299 or lower, but price hasn't yet made a valid
"2" leg, so I know there is plenty of time if this really is a coil. The
double bottom also colors my judgement a little--I am hoping for a nice
reaction higher to get short. If I didn't suspect a coil was forming, I
would be a seller at the level of the Median Line [roughly 1298].
Price moves up and makes a double top at 1299. I don't get filled and price
starts to head lower. I leave my order in, but I will be watching price as
it sells off. I may have missed my good trade location by trying to be too
fine...I mark the double tops at 1299 as point "2."
Price makes one lower inside bar from the double tops at 1299 and then runs
higher to 1299 1/2. I am short now at 1299 1/4. [I marked this up bar with
a red square] For me, a very nice bit of luck.
Price heads lower and tests 1292 1/4 for the third time, then rallies. I
mark that as point "3."
Price then just touches1299 for point "4" before heading lower. Not that
although price has basically been coiling sideways, the key resistance for
me is the Median Line and it has now positioned itself above the
coil--that's why you get an edge by being able to anticipate.
Price now heads down to touch 1292 again and this time, it makes a new low.
You can see by the next few bars, the upward energy has been spent.
There is an end of day rule that gives price projections based on the
height of any coil and how many touches it has made [you can't count inside
misses that are close]. The end of day rule has become less and less
useful, so most people have forgotten about it. But I am doing statistics
on it right now by hand and it seems to be giving some information when
looked at with intraday bars.
If this isn't clear or if there are questions, ask away.
Thanks for a great question, Earl.
Best,
Tim Morge
www.medianline.com
At 08:59 AM 5/30/2001 -0600, you wrote:
>Just to make sure I understand, I've attached a GIF of one of the coils
>illustrated on your web page and annotated it with a count of 5 "touches".
>Is this how you count your touches and do I assume that your short entry
>would be at #4 with something on the order of a 5 handle stop at the 50%
>retracement? If not, could you post an annotated chart when you have the
>time?
>
>Earl
>
>----- Original Message -----
>From: "Timothy Morge" <tmorge@xxxxxxxxxxxxxxx>
>To: <realtraders@xxxxxxxxxxxxxxx>
>Sent: Wednesday, May 30, 2001 8:41 AM
>Subject: Re: [RT] Coils
>
>
> > At 08:19 AM 5/30/2001 -0600, you wrote:
> > >Tim, do you have a set of guidelines you use in identifying coils:
>minimum
> > >number of bars, percentage retracement of preceding move, minimum time
> > >frame, etc.?
> >
> > Good morning, Earl!
> >
> > I actually am doing work by hand on 13 and 39 min charts of the S&Ps and
> > Nasdaq and 30 year bond markets to try to "formalize" my definition and
> > also refine some measuring statistics I have that were built on end of day
> > coils. I expect coils in general to have 5 "touches" or alternate closes
> > before they breakout. By an "edge," I mean that if I am able to pick a
>side
> > as the coil is just beginning to form, I can often get great trade
>location
> > if I am willing to sell at levels even outside the coil's highs [in a sell
> > side example]. So if a newly forming potential coil has confluence above
>it
> > or a strong fib cluster or a down sloping Median Line above it, I will
> > often try to sell any approach back to the first high bar after price
>makes
> > an initial low [I hope this makes some sense]. If I choose a side, I have
> > no need to wait for the third or fourth or fifth leg before entry--which
>is
> > how most break out traders trade a consolidation pattern.
> >
> > I am seeing good results with measuring statistics and I am hoping that
>the
> > end of day technique will translate well into a measuring technique that
> > allows a useful price projection series solely based upon the number of
> > touches and the width of the coil.
> >
> > Best,
> >
> > Tim Morge
> > www.medianline.com
> >
> >
> > >Also, when you refer to "trading against the edge" of a coil, I
> > >assume that in the case of a decline you are referring to selling against
> > >the high of the coil - do I assume that this means you require a
>retracement
> > >to establish the upper bound, decline to establish the lower, then sell
>the
> > >rally by fading the next retracement a couple of handles short of the
>upper
> > >bound?
> > >
> > >Earl
> > >
> > >
> > >
> > >To unsubscribe from this group, send an email to:
> > >realtraders-unsubscribe@xxxxxxxxxxxxxxx
> > >
> > >
> > >
> > >Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
> >
> >
> > To unsubscribe from this group, send an email to:
> > realtraders-unsubscribe@xxxxxxxxxxxxxxx
> >
> >
> >
> > Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
> >
> >
> >
>
>
>To unsubscribe from this group, send an email to:
>realtraders-unsubscribe@xxxxxxxxxxxxxxx
>
>
>
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>
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