Trading with Seleneís Chariot
By Sean Erikson
SOME FURTHER MARKET EXAMPLES
Iíve had quite a few emails forwarded to me from Brad with various questions about the course. Heís going to compile an FAQ, but particularly wanted me to answer the two most common questions, which are:
1) Do these tools work on market ______?
The answer is ďYES!Ē These tools work on everything! In the book I made an extra effort to spread the examples across a wide range of markets so as to show as many different variables in terms of markets and timeframes as I could. I used futures, stocks, currencies, and many different time frames. I have not yet seen a freely traded market where these tools do not work.
2) Can I see a current sample chart of my favorite market?
Ok. Iíve gone back and analyzed a few more markets for you which you can see below. Having said that, Iím only one guy, and the number of markets and time frames we could look at is endless. But Iím happy to do a few... Letís take a look at a futures market, an ETF, and a currency, on medium, long, and fast time frames. Hopefully that will give a good representation of what these tools can be applied to.
If you havenít already read the introduction to the tools that I wrote, read that Overview before looking at these examples, otherwise youíre not going to know what Iím talking about with these channels and lines. Also, please keep in mind that this is a public page, so thereís only so much Iím willing to draw on these charts.
So, you can think of this as a kind of basic outline, and just realize that youíre only seeing the skeleton here rather than the fully fleshed-out system in all its glory. Thereís a TON of extra information that Iím just going to ignore on this page. But, hopefully, what I can show you is enough to satisfy your curiosity.
SIGNALS FOR THE LAST YEAR ON DAILY GOLD
Ok, first up is Gold, daily. Iím not personally a gold bug, and Iíve never traded this market, but itís easy enough to analyze. The following chart gives one year of signals and channels for the daily Gold market, starting from today and moving backwards in time:
Thereís a lot going on here, so to keep things clear, Iíve placed letters at the points I want to talk about, from A to H.
A: The yellow line is the bottom of the previous channel. When gold breaks through that, itís a short. This is what we would have been studying this time last year, and the move was quite a nice one, running along the lower channel all the way to August, bringing us to the next letter.
B: Thereís a special signal that happens which is very rare. Itís when the market breaks under a lower channel (or over an upper one), usually to tag an important price target before making a spike reversal. Itís an advanced technique, and not part of the bread-and-butter tools that Iíd recommend to beginning traders, but if youíre quick you can really clean up in a short amount of time. I love this signal on index futures. You can see Gold drop down to hit the extended target (gray line) and bounce right back into the channel. 99 times out of 100 that grey line is the low of the move. Another fish-in-the-barrel trade happened after the sideways move as we bounced at the lower yellow channel line. I didnít mark the location, so you have to look for it, but that particular long signal was about as easy as they come.
C: This yellow channel was a short one. Market ran up into price at the gray line at the same time as we had a time target in the pink rectangle (which is a little hard to see.)
D: The downward channel was really just a small correction, and two downward pointing channel lines lined up together to create support here. One came from the big channel at A, and the other came from C. There was another pink time target, which told us to watch out. To be honest, to go long here Iíd want to look at the weeklies and see what was happening there first, but Iíd have definitely done something to manage the short. As an aside, narrow channels usually mean short, quick moves, and wide channels usually mean long, drawn-out moves. With well-behaved markets, you can gauge the length of a particular leg by the width of a channel it finds itself in.
E: Now weíre definitely long.
F: That pink rectangle is a price target zone. Sometimes you get specific targets, and other times you get a zone. It wonít make any sense why at this point and is a side effect of something that isnít shown on the chart. Notice that weíre bouncing up against the upper yellow channel line, right inside the rectangle. Thatís at least a profit take, and probably a short.
G: Second chance to go short. Check out how that lower yellow channel line held the market up. We knew where that line was before the market even got there. J You had a 3rd short at the first bump up against the upper white channel just after the break, where you could have increased your size.
H: This was another small channel, off the retracement from the big move up that just happened. Target and channel break would have gotten us long again, with our initial stop just under the low at H.
So, how did we do? The only place we might have taken a loss was with that short at C, but it would have been tiny. I guess we still could get stopped under H (it happens!), but that would be tiny too. On the plus side, we caught the move from A-to-B and D/E-to-F, both of which were great, along with a couple other smaller profits on the shorter legs. To tell you the truth, working through this chart makes me want to think about trading Gold!
OIL EXAMPLE Ė USO OIL ETF
Now letís look at USO. This is the popular Oil ETF. There are lots of Crude charts in the book, so I wanted to do something different here and set this one up so that each bar spans a period of 3 days. Thatís going to cover some pretty big moves, so this is a well suited time frame for trend following without having to go all the way to weekly bars.
Again, Iíve marked some places on the chart with letters to keep the discussion clear.
A: The downward sloping white line is the upper channel line from before. When youíre trend-following on a long-term chart, you can almost just trade the breaks of the channels and go with the flow. This is probably the easiest way to trade this approach, although the risk:reward ratios tend not to be as attractive as trading in other ways. Anyway, youíre definitely long going into the yellow tube. Iíve marked some gray arrows along the top of the yellow tube up into point B. Those are profit takes, and if youíre aggressive, counter-trend opportunities. I donít know why anyone would sell in an uptrend, but if you were at one of those places and got a good setup on a faster time frame, it would make that faster time frame trade that much juicier. The small blue arrow towards August 2018 was an additional long on the bounce.
B: Breaking into the white channel tells us the market is definitely going down. There were ways to get short earlier, but using the tools we are showing here, the channel break where we would have gone short. Gapping under the lower channel line is a pretty clear signal that the bears are going to have their way for a while. Note the small red arrow in December. Thatís a secondary sell in the channel, exactly similar to the small blue arrow in August when we were going the other way.
C: That rectangle is our price zone for the low. The market slid down and broke there, giving a perfect long setup. We ran up to our first price target (horizontal gray line) and paused. Now this market is going to either bounce here or break and drop. I havenít seen a technical signal either way that would make me take a specific action (aside from taking profits on the long), so weíll see what happens over the next few weeks.
AN UNUSUAL EXAMPLE Ė BITCOIN FUTURES (STB)
Weíve done a futures market, and an ETF, so letís look at one more. Since Iíve been saying this works on everything, I wanted to look for something really unusual to show. The market I came up with was Bitcoin futures. Not just cryptocurrencies, but cryptocurrency futures! And weíre even going to day trade it. Howís that for exotic?
Following is a 10-minute chart of XBT. I have no idea who would ever think to trade a market like this, but there are bars there, so I guess trades must be happeningÖ Iíve drawn in the most recent couple of channel lines. Notice how wide they are. That makes sense given the crazy volatility you see in this market. Wide channels mean really big swings. Ok, you know the drill by now:
A: That rectangle is a combination of price and time targets. So, we were really interested in the price that rectangle shows, but also at the time too. The market dropped into there and then bounced (or sort of gap-jumped?) all the way up to point B, where it ran into target 1.
B: This was the upper line from the descending channel that has been controlling the market throughout the 14th. Weíd expect a pause here, especially with our first gray target line sitting where it is, and we got one. That was actually a short if you were willing to trade counter trend (and could actually get a fill). The market moved sideways from here for the next 17 hours, all the way to point C.
C: This was the first bounce off the yellow channel. This is probably the best kind of setup with these tools. No one (except us, that is!) knows that support line is sitting out there in space since the market hasnít encountered it yet, so the fills are excellent, and the signals tend to be very clean on that first touch. Whenever youíre long already, those are great places to add to the position as well as an easy point to move your stop under.
D: This is right now as Iím writing this. Looks like XBT wants to break. Thereís a time target weíre coming up against, so I wouldnít be surprised if it happened.† But, if the market comes down into the line, and closes up like it did at C, it would be a second pyramid point on the way up to target 2 which we havenít yet reached. Obviously, this would be a lot easier to trade if there were more volume and the bars were easier to seeÖ!
So, there you have it! That was three more charts on three more markets giving clear examples of how youíd be looking at them within the context of this course. The trend and direction are all very easy to solve for, so the main task after that is to be alert to the lowest risk setups, of which there are many. I hope that gives you all a better idea of how this all works! If you like these tools enough to get this course, Iíll see you in the Online Forum to discuss many more examples and strategies for different types of trading on different time framesÖ
††††††††† Best wishes for successful trading,
†††††††††††††††††† Sean Erikson
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