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Example 1: 123 Bottom

Video Transcript

In this Track 'n Trade 5.0 Futures Trading Training video, I want to start by demonstrating for you a 123 Bottom trading example.

Now, 123 formation, is generally started off of the annual low. So, this is the lowest point of this nice downtrend in the Euro Dollar. We're looking for a retracement, as the market were anticipating bouncing off of this bottom, turning around and coming back up. We can anticipate it coming back up and testing some of these other areas of resistance that it had on the way down. So, we'll look for the market to come up and test some of these other different areas.

Now, as we do that- we want to come in here with our 123 Tool. I'm going to set the 123 Tool, at the bottom trend. Click 1, 2.. you can notice that it shows us where the halfway line is, the 50% between those two lines. 1, 2, and then back down. I'm going to show you, it's going to actually show you how far that market retraced back to 65.1%. Then if it went back out to 100% of the first move: 1 to 2 and 3 to 4, this would be a projection point of where we anticipate this market going on the first level.

You'll notice that lines right up with one of these other areas over here, one of these areas of resistance. Okay? Now, what we're going to do, is we're going to come in, and we're going to figure out how we can get into this market. If the market moves forward, retraces and comes back down, then starts to move out, again. One of the traditional methods of getting into the market is waiting for the market to break above the number 2 line. But if we wanted to, we could get in a little bit earlier. We could get in down here, somewhere and wait for the market to move out to that number 2 line. Depending on how big of a move this is, we could even take some profits at that number 2 line. This is a rather small move, so we may not go in and take profits at the number 2 line, but we can actually go in, and look for a break a little bit earlier than getting in and on a number 2 line. So we can come down here and we can say, if this market advances forward, which it just did...... we're going to get in on a break, above that point. So, let's come in here and let's say we're going to get in on a break above this point. So, we'll Buy 1 on a Stop, if the market moves forward. We'll step forward, and we didn't get in. The market didn't fill our order, it came back against us, so we'll hold our position. So, we'll put our order right above that high point, right there. Now, if it comes back against us, that's where we'll get in. It's coming back, we could actually trail down a little closer, and one more time. It still didn't get us into the market. So, we step forward, still didn't get us into the market, so it just gives us an opportunity to hold our position. Notice, if it continues to drop back down, we're not in the market, so we're not losing money. Placing this order up here, doesn't cost us anything, so there's no reason to worry about placing it there.

It's a contingency order- if it gets filled, then we'll place, we'll take, we'll pay a commission. If not, we'll just sit there and hold it, in case the market does go in our favor, we'll get in and go with it. This time it did go in our favor. So, now the market is going in our favor....

Let's come over here to our little calculator, and as this market - now of course we need to come in and place a Stop Order. Let's place an order, if we're wrong, right below that lowest point of those yellow Price Bars. So, we'll sell one on a Stop. What that's going to do is since we're in the market, if the market turns around and comes back against us, we'll get out. And we'll take a loss between where we got in and where we got out. We can use our dollar calculator, to calculate that. Whoops, grabbed the wrong tool. Let's come in here, Dollar Calculator. The distance between where we get in and where we get out, is about $100 on this particular market. Of course, the Risk Reward Tool can tell us if the market does go all the way up to 100%, that'll be a $343 profit on a $106 risk. Is that worth it? Yeah, I think that's worth it. We don't need this number here, so we can just close that one.

$106 risk to a $343 profit.

So, let's go ahead and walk this market forward, and see if this market goes up to our target area. If it does, there's several things that we can do. We can come in here and we can put an order to take some profits at the 100% level. Now, I don't often times like to make it go all the way to the 100% level. Sometimes I like to hold it just inside the 100% level.

So, we're going to Sell 1 back, and we have to use a Limit Order to do this, 1 Limit Order. So we'll take the profit between where we got in the market and where we would get out of the market on a 100%. So, if that market moves forward.. and it did, it took us out at 100%. We made our $278, and we're happy, right? No, we're not happy? Why? Well, we're not happy because the market continued to go higher, didn't we? We lost out, because we got out early. Ohhhh, well, what could we have done, what could we have done to make more money? Let's back up a little bit. Let's come in here, instead of getting in with 1 contract, maybe we could have got in with 2 contracts. Let's come in here, and let's go to the Settings, and let's Buy 2 contracts. Now, if the market moves forward in our favor, we now have to change our Stop Order, as well. We were in with 2, so we want to Stop-Out with 2. If the market moves forward, now, this time, now, as the market moves forward, now we took profits with 1 contract, but we're still in the market with another contract. So, because it's continuing up, we're still making money.

Now, we stopped 1 market out, so we need to take off one of our Stop Orders, right? So, we'll come in here to our Settings, change that to a Stop Setting 1, and we'll move our Stop up to maybe back in here. Now, as this market moves in our favor, we can actually advance the market, advance our stop, up the trend... and I want to wait for it to get us our retracement, there we go- nice little retracement. Then I want to see it advance forward, one more time.. there's our advance forward. Now we can move our Stop up to that lower point. Now as that market continues higher, advance forward, there we go, move it up. See, how I like it to go, move forward, pull back, once it advances forward, I'll move it up to the lower point. As we move forward, advance forward, pull back, come in at advance forward? No, it stopped us out. So, we made a little bit more profit on this trade, didn't we? Now, this time we made $707. Are you happy? No, you're not happy? Why, not? We could have made more money! How could we have made more money? Ohhh, let's back up a little bit more, then. What if we would have taken profits from right here, at this top point, here? See where this little area, is, of resistance? This market wants to go up and test that area. Well, if it wants to test it, let's take some profits. Now, let's not be on the outside of that area. Because it might not want to go past it. It might just want to go up and test it. So, let's put on the inside of that area, right up in here. Now, we're going to Sell 1 and we have to use a Limit Order, here. Move forward, step the market forward. Oh! Now, we got Limited out up there. As it tested this area, and we made $1,195. A little bit better way to make a little bit more profit. The problem with this is, now we're limited out, again, aren't we? We're not in the market anymore, are we? What if the market continues higher.... Another one of those situations. Maybe we should have gone in with 3 contracts. Taken a couple of Limits, left the third one out there. If we left the third one out there, we could have held our Stop back here, a little bit further. Maybe even all the way back to break even point. As that market moves forward, actually, let's do it! Let's come back, rather than talk about it. Let's do it!

Let's say we went in with 3- Settings, and we can come in with 3 contracts. And we're going to go into the market with 3 contracts. As that market moves forward, now we're limited out, now we can pull our Stop up. But we don't have to pull our Stop up, so close, because this is now our 1 contract, that if it goes for a long distance, we don't have to have our Stop win. We've already got $1,900, we're playing with somebody else's' money. Now, if that market pops back against us, oh! It's coming back pretty strong, anyway. We may get out afterall. No, now look! It jumped right back up, again. Let's go in there, and move this market forward, and as it advances, we can hold this Stop back a little bit further. Let that market move and grow, and maybe it'll go higher and higher. As it goes higher, we can move our Stop up a little bit, more conservatively. As that thing goes forward, we can make even more money. Now we're up $2,643 and we're still in this market. So, that market may continue to go higher, and higher. If you're happy with that, oh! Then we can just get out of the market, just by sucking that stuff way up close, way up tight like that. Now, if it drops back against us, we're going to take in all that profit, or if it continues higher, we can let it go, higher. Either way, it's up to you, you're the trader!


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