Track 'n Trade Futures End of Day
Example 2: Andrew's Pitchfork
In this Track 'n Trade 5.0 Futures Trading Training video, I want to start by demonstrating for you an advanced trading example.
Now, this is the Feeder Cattle contract, and I'm going to show you two or three different tools that you can use in combination with each other.
Now, what we've got here is, we've got this situation where the market has come down off the big, long, nice downtrend. It's reached an annual low. So, this is the lowest point for the year. Then, the market turned and retraced back up. Created another point, here, a retracement point, and then it dropped, once again.. down to this level.
Now, as technicians, we like to analyze these types of things. Count them, and measure them, and decide how far this market has gone.
We know that markets like to move in small waves. Little wave patterns: x, 1, 2, 3, 4, 5. Usually in 5 wave patterns. We come in here and here's an x, 1, 2, 3, 4, 5. Then, it came back and it did a little: a, b, c retracement. So, that's a nice little wave pattern.
Once markets reach the fifth wave, they generally turn around and come back down. Now, there's big waves and there's small waves. Markets move through these types of cycles. Now, it doesn't mean that because they generally go to the fifth wave, doesn't mean they can't go to 6, 7, 8, 9, 10, they certainly can. Also, just because more often than not they go to the fifth wave, doesn't mean they can't stop at the third or the first wave. They certainly can and sometimes do, often times do. But more often than not, they'll go to that fifth wave.
So, that market rolled up to that fifth wave, turned around and come back down. In that process, we like to measure those different waves. So we come in here, and I'm going to use a tool called the Fibonacci Ruler. I'm going to go from the bottom of the trend, up to the top of the trend. So, all I did was bracket that move. From the lowest point, which was x up to the highest point, which was the fifth wave.
Then, as that market comes back down through these different patterns- I'm going to come over here and turn on my Settings. I'm going to turn off these patterns, right here. I just want to use these three center patterns, these three center lines. Notice, that the market went up, came back down and used the first area of level and support, as it came across there. See, all those areas where it come down and it touched that price level, that's called an area of support. Once it broke through that area of support, it continued down to the next level, which was 61.8.
Now, in this example it did drop down to the next level. So, I can turn those back on. It broke down, through the 76.4% level before it started to retrace back up. Now, this is what we call the: 1, 2, 3 Bottom Formation. It's also the basis for a number of different types of trading strategies: 1, 2, and 3. Notice, it's a little pyramid pattern, or a little triangle pattern. This little pyramid pattern or triangle pattern is the key basis for a number of different tools.
First of all, you can see that it's the 1, 2, 3 Projection Tool. We can see that this market came back down and retraced back to a perfect 87.9% level off of that number 1 point.
If we project back out, how far that's going to be. The 50% level or the 50% projection out, is that 38.2 retracement. So, you can see that we've got that labeled in there. You can see this market came down, projected right back out, perfectly to that 50.50% level.
Now, we're going to anticipate it going all the out to the 100% level. But, before I do that, I want to show you something else. I want to come in here and show you a very unique tool, it's called the Andrew's Pitchfork. It too, is based off of this same pattern: 1, 2, 3, formation. What it's going to do, it's going to help us, it's going to give us some guidelines on where we can anticipate this market going.
So, we're going to come in here and we're going to lay this 1, 2, 3 Tool, in here. This Andrew's Pitchfork, right over the top of the 1, 2, 3 Tool. Notice, I click the exact same spots. I click down here for the 1, click down here for the 2, pull it back to the 3 point. Exactly the same as I did with the 1, 2, 3 Tool. But, this time it's going to give us little guidelines, out to where it's going to anticipate this market is going to go. Kind of like bracketing the market. So, now we've got areas of support, and we've got projection levels. Now, notice the interesting thing about this, and I'm going to get rid of this Fibonacci Ruler, for right now.
Now, notice on the Andrew's Pitchfork that it also has a 100% level. The 100% level is a very important level, when trading. We believe that the market is drawn to that 100% level. So, that's kind of a target area for us. We're going to anticipate the market rising to that price. If that's the case, we can take advantage of that by getting into the market, as the market breaks above these different levels. If we get into the market, we should anticipate taking profits, or at least riding the market up to the 100% level. Now, we can do that with Track 'n Trade, a number of different ways. Of course, we're just going to come in here, we'll Buy on a break above that 50% level. Just say, Buy 1 Stop. We're going to say, Okay.
Very simply, we can come in here and we could put another order in here, and say, if it comes out to this 100% level- I'm going put it just on the inside of it. We don't always like it to push all the way to the 100%, just a little inside of it. I'm going to Sell 1, on a Limit. Which means, I'm just going to take the profit between where the market is currently trading, and the 100% level. How much money is that? This is just between entry point, and exit would be about $1,900. Is it going to go there? I don't know, we don't know. We're just projecting that the majority of the time, the probabilities tell us, that that's a nice place for that market to go to.
So, as the market moves forward, we're going to come in here and make our deposit. We can place a Stop Loss order, in here. I'm just going to place it right down here, behind an area of resistance. I'm going to Sell that one, if we're wrong. So, if we're wrong, we're going to get right back out, again.
As that market moves forward, we anticipate it going up to, and hopefully it will touch that Limit Order. Nope, it's coming back down, a little bit. There it goes, back up, right up and hits our 100% level. So, that's a nice trade, we took a little bit of money off the table, just off of a very simple knowledge that the market has a tendency to go back up to that 100% level. That's a $1,800 profit off of this nice little trade.
Now, what we anticipate is that this market is going to continue, and it will probably draw and bounce between these little different areas of support and resistance on the upper side. It could go all the way up to the 2, on the lower side, it could come all the way down to this lower side, down on the 3.
It doesn't mean it can't break out of those and go higher than that, it certainly can. It doesn't mean it can't break lower than this, and break out of it, it certainly can. Those are also indications for us of market direction, as well. But we like to see the market kind of stay inside of this little guideline, as it advances forward.
I'm not going to use it as a trading example, and tell you where to get in and out of the markets. I'm just going to sit here, and analyze and show you that the market has a tendency to go through these different areas within these different tools.
Here's 125% level, on that Fibonacci Ruler, or on that Andrew's Pitchfork. You can see that this market went through that 125% level. As we move this market forward, you can see as it goes up, and it uses the upper region, up in here, as a resistance point. It uses this center line, as an area of support on the bottom side, and resistance across the top side. Then, it'll come down and it'll attempt to touch this level, as it rebounds back and forth.
We also anticipate markets moving in waves, once again. So, here, we're going to start with this lower wave, x. It's coming up here, so I'm going to count this one at the 100% as 1, down to the lower one 2, 3. We're going to anticipate a pullback down in here, somewhere, which would be 4, and then out to 5, a, b, c. I'm not exactly sure where those are going to be, so as the market creates those waves, I'll move those positions. So, as the market moves, now it's pulling back into the lower region, we wait for it to bounce back up, again. There, it's starting to roll off of this bottom. So, I'm just going to put this 4 point, right here.
So, now we've gone x, 1, 2, 3, 4. We're going to anticipate a Top, right up here somewhere. Then, we'll anticipate that this market is going to make a little bit of a wave, retracement and come back down. So, as we watch this market move, if it goes down and creates a new lower low, I'll just pull that down and put it on the new lower, lower point. But it didn't, it staying right there. So, we'll leave it right where it's at. Now, as this market, again, climbs notice it climbing up through this area and as it reaches up into the fifth wave, we'll just keep moving that up as it goes higher. It's coming back down, so there's where we anticipate that this fifth wave is, right here. Maybe this is the a, if it comes down a little lower. Now, it's come down, we can put this down one more, right here. Now, we'll just wait for it to go back up. As it goes back up, we'll put this here. Then, we'll anticipate it coming back down one more time. As it comes down, there's our lower point, right there. The.... cycle is complete at that point.
So, now we see that these market have a tendency to move through these different patterns and I'm going to extend this out, just a little bit further and you can see how it uses the upper region, as resistance in the lower regions as support.