Are you a breakout trader?

Are you frustrated like so many other traders that are trying to trade the futures markets by placing buy stops above proir highs or sell stops below prior lows?

The one thing we stress over and over again to all of our traders is THE S&P’S DO NOT WANT TO BREAK OUT! In normal market conditions 75% of the time the market is non-trending on an intra-day basis. Yes throughout the day we might make a new high or low from the prior day, but when day trading we don’t want to fight the fact that the S&P’S don’t want to break out. We actually want to be exiting or trailing our stops tight at decision points like a prior high and low.

Trader’s first start out trading breakouts because it is the easiest trade to learn due to the fact it is very easy to see a prior high or low on your charts, BUT in real world trading the odds are stacked against you trying to catch a breakout trade. Not only are the odds stacked highly against you but your risk is far greater than the reward you may receive if the trade does work out. Did you know that most all highs and lows are re-tested before the trend continues? This is where you enter a trade long off of a prior high and then the price comes back down to re-test the breakout point and you cover your trade thinking “maybe it is not going to break out this time” then the price consolidates at the breakout point then continues higher BUT YOU HAVE ALREADY COVERED YOUR LONG POSITION!!

You must already be in a trade as it approaches the prior high with a prior signal getting you in the trade long. Once in a trade as it approaches the prior high there are things we go over in the course that tells you if we are more likely to break that prior high. You must have a cushion of profit going into the breakout point incase the breakout does NOT occur.

Trading breakouts in our opinion is the easiest way to let you emotions take control of your trading. We call the breakout point the “decision point” and we do not want to be entering a trade at a risking decision point PERIOD!

In this video we will go over the difference in how to read up moves and down moves. There is a big difference when it comes to breaking out going long OR breaking out going short.

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HUGE PROFITS IN CME!

CME is a stock that is not to be taken lightly meaning a wrong move can be very costly as the weekly to intra day swings can be very large. On the other hand having a defined trading appraoch with indicators that give you a edge trading CME can produce huge profits in the stock or trading the options.

In the chart above you can see there were blue bars at the bottom of the chart and the indicator is LOW meaning a big move is going to start. The price was around $180.00) From there the price had a initial spike to $250.00 (Nice gainer) But that wansnt even the true buy signal. The true buy signal came in on the 2nd set of greens where i wrote LONG on the chart. You can see once the bars turned back to green the stop was only one bar (the low of the last red bar) NOT all the way back down below $180.00 like most traders are taught. That stop is simply to big for the reward the stock can produce. Our stop was about $10.00 points with a target of $320.00 or about 100 points! 10:1 risk / reward. The options were trading at $10.00 on the day the buy signal triggered, then making a high around $95 on the option!

Looking at this chart once CME took off to the upside you will notice that the blue bars came in to tell us that the move is over up at $330.00 which is a great place to exit all of the trade and be flat as a correction is going to occur.

The blue bars give us a high odds area for the start and the end of a move no matter if it is on a daily chart of a 5 min chart the indicators are dynamic and work on all timeframes. If you would like to see specific charts or have questions please email us at trade@eminischool.com

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Finding the Low (Blue Bars)

In our prior post we were talking about the ES and that the 950 area would be a sell as that would potentially be the end of the 5th wave up. Since then the ES broke out hit the 950 area then dove 65.00 points to make a low at 885.00.

Notice how on the 30 min chart we had blue bars right at the low of 885.00 this gives us a high odds turning point in realtime so we known not to short after the blue bar prints. Notice how after the blue bars we had a upmove then turned back down to take out the lows. Since there were blue bars on that low we are not thinking the low will be taken out and actually want to look to take the next long signal on the smaller time frame.

The blue bars tell us when a big move is going to start and end in real time. Along with the levels we use to confirm our market outlook. If you have any questions or would like to see other charts please let us know. You can email us anytimne at trade@eminischool.com

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925 - 950 is the S&P range

For the last 7-8 days the ES has basically went sideways with the 950 area being a critical resistance level. Tomorrow we will be watching the 942.00 level as this could be the short term resistance level that could hold the price down on the smaller more intra-day time frames. The 925.00 level is now the support zone (the prior support was 875.00). The 30 min chart looks similiar to when we were near the 875.00 support zone before we broke higher. Even though the last 7-8 days has really been a non event, tommorrow could be the day where we finally get some movement one way or the other.

Some stocks like GS and AAPL have had some selling pressure on them the last few days. Keep an eye on these stocks as more follow through to the downside could lead the market lower, or at least keep the resistance holding the market down at this level.

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ES Inverse Head & Shoulders?

Looking at the ES on a daily chart we have the downward sloping 200 day moving average that closed today at 927.50. We are sill in the wedge on the 30 min chart and today we did not clear the 915 level again, the high that was made today was 909.00 with 910 being are upper level on the day. We are slowly making low highs on the 30 min, but those lower highs have not been confirmed by taking out any of the 30 min lows around 880.00 -875.00 area.

The daily chart looks as though we could possible be nearing the neckline of the Inverse Head & SHoulders pattern. If the market stalls out here and starts to re trace we will keep an eye on this pattern. If the pattern does hold at the shoulder line there could be great oppurtunites in the weeks ahead.

If this is the 4th wave which is corrective we still have the chance at pushing higher , but like we waid before we would be a seller of that rally. The upper level we would be looking at if the market broker higher would be the 940.00 level.

Until we break one way or the other it is hard to initiate a fresh position long at these levels. There are some individual stocks poised to make a move higher that is the only reason we still feel as though we could make one more run to new highs on this move. We are keeping a close eye on the 30 min wedge to see which way we go at this level. The 200 day moving average on the 30 min chart has flattened out today which means we should get a move one way or the other very soon.

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Watching the $133.90 level on GS

There is no doubt that GS has had a very nice move to the upside from the 11/21/08 low of $47.40 to the high that was put in place today at $145.50 , that is nearly a 300% move in six months. Can GS keep the stong momentum from this level to go another 60 points to the next major resistance level that was put in palce back on 5/02/08 at $203.00 or is it time GS will start to retreat back to the $100.00 level?

We wont know for sure until it starts to make it's move, but looking at the chart at this level the odds would seem to lean more towards correcting this 300% rally and come back down near the $100.00 level rather then extending up another 60 points from here. This will be a good indicator to the overall market holding here at 8,300 on the DOW or a move lower.

We are specifically watching a weekly close below the $133.90 level on GS. Even a daily close would trigger more selling in the stock as $133.90 would be taking out last weeks low. Today GS tested the high at $144.86 made back on 5/19/09 and buyers did NOT take out the highs with big buying pressure, we actually closed down $5.00 from the high of the day at $145.50 which was .60 cents higher than the high that was made on 5/19/09.

Maybe traders did buy the breakout but then quickly reversed there thinking and covered their longs as GS started to breakdown at the end of the day, but being that we could not take it out the highs of 5/19/09 and close above them makes us think that buyers will think twice before trying to play the breakout again if it occurs before we take out the $133.90 low.

Keep an eye on the $133.90 level on GS it might give you a heads up to which way the market is going to go if GS breaks this level before the ES breaks the 875.00 level.

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ES Short Term Resistance holding 915'

Yesterdays post we talked about the 915.00 level in the ES as short term resistance. Today the market made a high of 913.00 then dove 21.00 points to close at 892.00. We also noted that we are in a range with the low of the range being 875.00 and the higher level of the range is 930.00 and that we could bounce around between these numbers for the next few days.

The fact that 915.00 held the market down sets a short term bearish tone to the markets, and we wouldn't be suprised to see more downside action tomorrow. The 875.00 level will be a battle but if we break that support bigger funds will take note of that and probably stop themselves out of long positions.

Some of the stocks that have lead this move higher such as MON and POT got crushed today (MON) chart is looking the worst of them, but this could be a sign of profit taking as the ES can not break through the the high side of this range.

On the 60 min ES chart you can see we are making a flag type pattern and also forming a wedge, this pattern can still go one more time to the upside , but we would be a seller of that breakout if it happens. There is both time and price resistance for the rest of the week meaning: if we cant break out to new highs by the end of the week, we will most liekly start the correction that everyone is waiting for.

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