Eurodollar update 4-20-2007 4hr
Hopefully everyone got their book updates 1 and 2. Remember that there will be some mistakes as what I'm giving you now is not the polished version that You will receive when the whole thing is done. It's just that I don't want you to keep having to wait because I know you've been waiting a while for it. Fortunately I have a couple of sharp students (Thanks Sue, thanks Mimo) who help me out by pointing out certain errors I make in these manuscript versions.
That brings be to a correction I need to make on the 2ND update I mailed out last night.
Page 2 paragraph 5 reads; "With all this volume this bar could not close below the low of the prior bar, and could not even close below the open of the swing bar.
"However it should read; "With all this volume this bar could not close below the low of the prior bar, and could not even close below the close of the swing bar.
"In order to further illustrate what I mean in that portion concerning volume I hope you will allow me a little analogy.Think of it this way.
If you are standing on some stairs and I push you and you stumble down 1 stair step and stop. Then I push you again twice as hard. On the second push you don't stumble down any more steps, but remain on the 1st step you went down to on the first push. Since I pushed you harder on the second push you should have stumbled down at least another step. The fact that you didn't means that you are showing strength of balance and your momentum has changed from down to up.This is what they mean when they say one needs to be counter intuitive when trading markets.
You can pull up the 4hr Eurodollar chart for today and look at the white candles. Even though their were 3 bars with higher volume the market really didn't do much. Professional traders who move the market can see that the market is showing strength so they did not jump in. By the force of the volume the market should have fallen much harder but did not. Since it did not do what it was supposed to do, fall, that is a show of strength.
On the chart I have provided see how bars 1,2,and 3 all close within the range of the green (up bar). The gold lines. With all that volume yet, only a 26 pip range? 3 bars staying within the range of one single up bar that doesn't even classify as a range bar... Bar 2 had higher volume than bar 1, yet, did not manage to close below the low of bar 1 (harder push no additional step).
Bar 4 finally managed a close below below the green bar and below the low of it's prior bar (3). So, finally we have a bearish breakout from the range of the green bar, but only by a paltry 2 pips. Non of this inspired confidence for a short entry today.
But the market did what the market does. After the breakout the next bar (5) pulled back up to test the range of the breakout before closing down. But, an inside bar. It did not close below the low of bar (4). It also closed on lower volume.
Now bar 5 did what it was supposed to do. It had lower volume so it was not supposed to close lower. So, here is what I expect from here.
That brings be to a correction I need to make on the 2ND update I mailed out last night.
Page 2 paragraph 5 reads; "With all this volume this bar could not close below the low of the prior bar, and could not even close below the open of the swing bar.
"However it should read; "With all this volume this bar could not close below the low of the prior bar, and could not even close below the close of the swing bar.
"In order to further illustrate what I mean in that portion concerning volume I hope you will allow me a little analogy.Think of it this way.
If you are standing on some stairs and I push you and you stumble down 1 stair step and stop. Then I push you again twice as hard. On the second push you don't stumble down any more steps, but remain on the 1st step you went down to on the first push. Since I pushed you harder on the second push you should have stumbled down at least another step. The fact that you didn't means that you are showing strength of balance and your momentum has changed from down to up.This is what they mean when they say one needs to be counter intuitive when trading markets.
You can pull up the 4hr Eurodollar chart for today and look at the white candles. Even though their were 3 bars with higher volume the market really didn't do much. Professional traders who move the market can see that the market is showing strength so they did not jump in. By the force of the volume the market should have fallen much harder but did not. Since it did not do what it was supposed to do, fall, that is a show of strength.
On the chart I have provided see how bars 1,2,and 3 all close within the range of the green (up bar). The gold lines. With all that volume yet, only a 26 pip range? 3 bars staying within the range of one single up bar that doesn't even classify as a range bar... Bar 2 had higher volume than bar 1, yet, did not manage to close below the low of bar 1 (harder push no additional step).
Bar 4 finally managed a close below below the green bar and below the low of it's prior bar (3). So, finally we have a bearish breakout from the range of the green bar, but only by a paltry 2 pips. Non of this inspired confidence for a short entry today.
But the market did what the market does. After the breakout the next bar (5) pulled back up to test the range of the breakout before closing down. But, an inside bar. It did not close below the low of bar (4). It also closed on lower volume.
Now bar 5 did what it was supposed to do. It had lower volume so it was not supposed to close lower. So, here is what I expect from here.
I expect the next bar to test the range of the first two red lines (three bar equilibrium) which are the open and low of the bar that represents equilibrium. You can never know for sure if price will just test the open or go through the open and test the low. That is the range of decision for a trader.
If I'm already in a short trade here and looking to take profits I get out when the open is touched of the bar serving as 3 bar equilibrium. If I'm looking to fade the move and go long I will look to enter at the low of the bar serving as 3 bar equilibrium.
( fading a move is market jargon for expecting price to bounce off a certain level. When you do this you are not waiting for a pivot so it's a lot more risky. If the market is falling you place a limit order to buy when price touches a certain level. If the market is rising you place a limit order to sell when price hits a certain level)
It's just my opinion but I find success most often with this technique when I fade off of 3 bar equilibrium for a quick in and out trade.
If price should close below the low I'm looking for it to continue to A (The next 2 bars lower) third red line. If it closes below A I'm looking for it to fall to B (2 more bars lower) fourt red line. That's how you walk and that's how a market walks. left, right. One, two, one, two...left, right... The 2 step waltz.
I don't know if I've mentioned this before but before any single bar can be considers strong or weak it has to remove itself from the confines of the bar that preceded it.
So, while we're talking about three bar equilibrium, on the way to oz (2 bar above or below the swing bar) if price should bounce off the first bar then it's a good sign that the pivot will fail. This is just one more bullet in your pistol to confirm what other things are telling you.
If you're wondering why I'm milking pivots and 3 bar balance for all it's worth all you need to do is look back on your charts.
And, the longer time frame you look at the better the results. The moves are more pure because you get fewer whipsaws and the big volume is at support/resistance on the daily up.
I want you to do something. Look for pivots and 3 bar on the weekly and monthly, and daily. I'm telling you right now that if you were trading just based on pivot, 3 bar, and volume, you would have made big money. You will notice how pure the moves are on the weekly and monthly.
You only think you can't afford to trade off these charts. But what if you based your intraday entry off a pullback to a monthly pivot point. Your stop won't have to be the low of the monthly swing bar. You stop can still be below the low or the 1 or 4hr pivot. but just below that intraday pivot is the monthly pivot or the weekly pivot. That big pivot is playing big brother protector to your little pivot. Do your homework on this I guarantee you will be impressed.
This is the real deal. It's not that you can't afford to trade off the longer term support/resistance, it's that you don't have the patience to do so. From here on out when I make a trade call for you intraday it will be on an intraday bounce off a daily or longer support/resistance.
Oh, I better stop now before I've written another book.
Cheers, Jerry
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