EURODOLLAR FRI 4-20 TRADING LESSON

Let's recap what we talked about today

Okay, bar 3 is not a valid pivot bar because a valid pivot bar, like any other breakout of support/resistance should occur on higher volume. This was not a pivot bar to trade from. What I failed to make clear was that I only mentioned it to show that it was not a valid pivot due to volume. So, at this point there had not been not bullish pivot I really wanted to point out that it was not a valid pivot. I've been gone for a while, maybe I have to get my mental coordination back.

Look to bar 6. This is the actual valid bull pivot bar. This is the first bar that closed higher than the high of bar 1 on higher volume. This occurred eight bars after bar 1. This is a complex pivot. The temptation is to look at bar 5 (seven bars after bar 1) as the pivot measuring (swing) bar but it is not. Up to this point (bar 5) There has not been a valid pivot bar since bar 1. Bar 1 is still the pivot measuring (swing) bar until another bar closes below it.

Bar 5 closed inside the range of bar 1 not lower than bar 1 so it could not be the swing (pivot measuring) bar. Now you know why it's called a complex pivot. Note again, bar 1 is the swing (potential measuring) bar until a close below it. The eight bar after bar 1 (bar 6) is the bullish trade signal bar, the valid pivot bar on higher volume. The time to enter would be the close of bar 6 or a pullback to the high of bar 1. The stop would be below the low of bar 1, and the first target would still be bar 2 (three bar equilibrium).

Then also consider that bar 1 is a range bar. If we add our range bar guidelines to the picture it becomes even more clear. This is what I mean by not trading one thing by itself (in a vacuum). Just by considering what you have learned about range bars would clear up some questions about this pattern since we already know that range bars are support/resistance in their own right. So, even if bar 1 was not a swing bar it would still be the barometer for a breakout. Then, when we add what we already know about volume, that any breakout of support/resistance needs to be supported by higher volume, even if I make an error you will see that it I am in error without me saying anything.

Jerry

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CORRECTION ON LAST CHART

This post is to notify you of a correction to the last chart I posted. Click on chart to see how it should have appeared. On the prior chart bar 1 is noted as the pivot measuring bar but it is underneath the wrong bar. It should be underneath the long white candle instead of the green candle that it is sitting under. I apologize for the confusion. I should have been more careful.

Many times when I am doing real time updates I am rushing to get it out to illustrate a particular point before the market moves and does something else. I want you to have it before a move occurs so that you can get an idea of anticipating certain happenings before they happen.

I also want you to keep in mind that real time commentary can not be as orderly as the lessons in the book, or when I'm simply posting a lesson. During real time I am commenting on things as they happen and they don't happen in a certain order. Thus, I am jumping around without
regard for a particular order of lessons.

Then too I'm trying to give you an outlook for both daily and intraday simultaneously. So, at times it may seem inconsistent because a person whom is trading off the daily will have a different outlook than a person trading intraday. But I need your feedback to tell me what is helpful or not or what seems confusing or inconsistent. In this way I can conform the commentary to the needs of the less experienced as well as the more experienced. If I don't hear from you I have to assume that you are getting out of it what you need to get out of it.

Today a got a response from one of my most dedicated students letting me know that I seem to be somewhat inconsistant and the comments were extremely illuminating for me. I need you to give me your feedback also so that I may make necessary adjustments as needed.

Jerry

4TH POST 4-19-2007

Here is an important point I need to mention about 3 bar equilibrium. Just as you should not count inside bars there is a flip side to that. For everything there is a balance and the balance to not counting inside bars is this. A range bar counts as 2 bars. At this point I hope I don't have to go into what a range bar is (see LCM).

Also I want you to remember that no technique is to be traded alone. Care should be taken to look at any indication within in the totality of market structure. There are six keys to knowing where a market is as far as structure is concerned.

1. Most recent top and bottom
2.Most recent pivot
3. Three bar equilibrium
4. Range bars
5. Fibonacci
6. Volume

1. Most recent top and bottom tells you where the market is in relation to trend.

2.Most recent pivot tells you the likely direction and strength of the current move within the most recent top and bottom.

3. Three bar equilibrium tells you if the most recent pivot will test the most recent top or bottom and the first level you should look to take profits.

4. Range bars present a level of support or resistance that a market must get through on the way to the next top or bottom. It is one bar support/resistance.

5. Fibonacci tells you if a move is a temporary bounce or a real reversal as well as providing logical entry/exit points.

6. Volume tells you if a move contains enough energy to be sustained.

This is something that many of you intraday traders don't want to consider even though I repeat this over and over. An intraday trade must be considered in the context of what's going on with the daily, weekly, and monthly charts, Just as daily charts must be consider the context of the weekly and monthly charts. There is a hierarchy of power and you must always look up to the next level of power.

Monthly trumps weekly. Weekly trumps daily. Daily trumps 4 hr. 4hr trumps 1 hr. 1 hr trumps 30 min, ans so on. Oh yeah, there are also quarterly and annual charts. Quarterly trumps monthly. Annual trumps quarterly.

When something does not work like you think it should, 9 times out of 10 it did work the next leve up and you bumped heads with it. You did not pay attention to the hierarchy. The larger wave trumps the smaller wave. Nothing else even makes sense.

Well, I think I've given you enough fat to chew on for today. I've got to get busy on the new website which is under construction.

Take care, Jerry.
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3nd POST THUR 4-19-2007

Now let's look at what has transpired since the first move and pullback to 61% retracement on the 1 hr. It's 10:00 am est. since the pullback did not close above 61% that was a signal for a second wave decline and we now extend out fibonacci line to this new low which is the bottom of bar 1.
A new bounce up started after the close of this bar. We are looking for a bullish pivot to see if this is just a retracement or a bounce.

We did get a pivot and bar 3 is the pivot bar as it closed above the high of bar one which is the measuring bar, and closed above 61% retracement. But notice that it did so on lower volume so this is a pivot and fibonacci break with little strength as per your volume rules so we would classify this upmove as a bounce rather than a retracement.

Bar 2 is 3 bar equilibrium for this move because the two bars before bar 1 are inside bars so we don't count these and notice how price bounced off bar 2, and did in fact bounce back down kind of hard (see bar 4).

Study this action. Back test 3 bar equilibrium on the daily charts. I think you will then better understand that there are three points to balance as I illustrate in the free version of LCM.

Jerry

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2nd post for 4-19-2007

Lets look at an intraday chart so we can zoom in on the action for today. I have attached a 1 hour chart. Bar 1 is where the market was during my last post 10:20 pm est. That's why I have drawn the fibonacci lines to the low of this bar. This other bars had not printed yet.

Looking at bar B you can see that price subsequently bounced back up to the 61% retracement before heading back down. Once the first move had been missed this was the safest place to enter. See my earlier post this week for clarification.

Okay, if you received the book update last night you now have an idea about 3 bar equilibrium so look at bars A and B. These are inside bars. When you are doing your 3 bar count do not include inside bars. Bar Z would be the 1st bar to include in the count and bar X is the second. The bounce back up to 61% occurred of the bottom of bar X, which is 3 bar equilibrium for this downswing. Three bar is the first place to look to take profits or expect a bounce. A close below three bar is expected to go down 2 more bars. Just remember, don't count inside bars.

Jerry.

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