Track 'n Trade Futures End of Day
Example 4: Channel Tool
In this Track 'n Trade 5.0 Futures Trading Training video, I want to start by demonstrating for you a simple narrow channel trading example.
Now, we're looking at the current Cotton Contract. You can see that it's gone into a real nice, long, narrow, sideways channel. Now, when you see this type of a formation, this is an opportunity for you to make some money. Now, in the Futures market, we don't care which direction the market goes. If it goes up, we buy and we go long. If it goes down, we sell and we go short and we make money. It doesn't matter which direction the market goes. So, we just want to make sure that we're on the right side of the market when it begins to trend in that direction.
One way to do that, is to bracket with our narrow, sideways channel tool. A certain, narrow sideways channel market. Once a market begins to go sideways like this, what we want to do is bracket the market...(I can reverse this, just so that we get that text over on the other side...there we go). So, now you see I've got my text, price text over here on the other side.
As this market goes sideways, what we want to do is wait for a breakout. Then, we're going to go in that direction. Well, a very simple way to do that in Track 'n Trade, is come up here and hit the Buy/Sell button. If the market breaks outside of that trend-line, we're going to Buy 1 on a Stop. So, if the market goes long, we're going to go up. Very simply, just the opposite, if the market is going to go down, we're going to sell 1, on a Stop. We don't care which direction the market is going to go. This is what's called: bracketing the market. So, if the market goes up, we'll buy. If it goes down, we'll go short. We'll just use the opposite order as our Stop Order. So, our risk is the distance between where we'd get into the market, and where we'd get out, if we're wrong. What if the market comes down, fills our order, then turns around and comes up and hits our Stop Order? How much money would we be risking? We'd be risking the distance of that channel.
In this example, that channel is about..oh, $890.00 wide. So, by having out Stops that far apart, if the market comes down, fills our position, turns around, and goes back against us, goes up and hit sour Stop Order- our Stop Loss Order, then we would lose $890.00. Now, if the market continues to drop in our favor, to a certain level, down to here. Let's say the market comes down here, that's about a $3,000 profit, with an $890.00 risk. If the market breaks out the top, and let's say it goes back up to this range, here. This would be, again, about a $3,000 profit for a $890.00 loss.
Now, what we do, is we just wait for the market to move forward. We step the market forward, and of course we get a Margin Call, which indicates that I forgot to open up my account. So, I make a deposit, we are in a Time Machine. Come back here and we can come in and say $5,000.00, hit Okay. You can see, we've sold one contract. So, we're in the market short, this is our very first day. We're up $42.00. We've got our Stop Loss placed back behind the area of resistance, which is on the outside of the narrow channel. Now, as this market moves in our favor, we can then, pull our Stop in a little bit closer, as it drops in our favor. So, at this point, we can then move our stop a little closer. As this market moves in our favor. So, at this point, we can move our Stop a little closer.
As this market moves in our favor, down through the trend, out the bottom. You can see that we're profiting as the market moves $817.00. Now, I can move my Stop in here a little bit closer, and protect my position, so I'm not taking quite as big of risk. Which would lower this distance here. All the way down, you can see I'm now only down around $190.00. So, as we move that forward, that market continues in our favor.
We've brought our Stop all the way down to our break even point, at this time. Now, we just step the market forward, so if the market does come back against us, we'll get out at our break-even, and we won't lose any money. It'll be a scratch trade. But now, as the market moves down, down, down, continues to go down, we can move our Stop down, just by simply clicking and dragging on it and taking it to new areas of support and resistance. Now, what we've done, is we can take our Dollar Calculator, and we've actually locked in some profits. The distance between where we would get out of the market, if it came back against us, and where we got in. Which is $625.00.
We have an unrealized gain, right now, of $1,822.00. But we've got to where the market pulled back, or where we've locked in $625.00. So if the market pulled back against us, we would lock in, and get out of the market with a $625.00 profit. As that market continues to move forward, we could continue to move our Stops down. Locking in additional profits. Now, we're currently at $2,700.00. Of course, you could call your broker, and immediately liquidate that position, and take your $2,700.00. Or you could just keep trailing down with a Stop and maybe the market will continue to drop in your favor. What we've done is we've locked in $1,535.00. So, we step the market forward, again. It keeps dropping further we can tighten up our Stops, to lock in a little bit more profit. There's $2,255.00. Now, the market is starting to come back against us a little bit. There, we've got a signal from our Stochastics Indicator that this market is about to retrace and come back against us. Step forward, again, and there it did. It continued higher, and we got out of the market, as the market hit our Stop.
So, we got out with $2,280.00 profit.