Timothy Morge Market Geometry Mentoring Sessions
Dortha Chuang
We focus on two very important things at Market Geometry: Our first priority is to help people become consistently profitable traders; our second priority is to teach traders to think about and manage trades like a seasoned professional trader. I have been a professional trader for 40 years and have been mentoring other professional traders since 1987. I try to approach every person who approaches me to learn to become a better trader, no matter their level of experience, with those two goals in mind.
It always gives me a great deal of pleasure to watch someone I have been teaching mature into a full-time professional trader, and I am proud to say there are quite a few traders making a full-time living after either beginning their education with me, or after I spent time with them breaking down the barriers that had been keeping them from being consistently profitable.
One of the traders I am particularly proud of is Shane Blankenship. Shane spent many years asking questions on my free public forum, then took my basic Market Maps Seminar and eventually entered one-on-one mentoring with me. You can see Shane these days showing his charting and trading skills alongside mine each day at Market Geometry. He became such a wonderful chartist and trader that when I recently moved to Arizona, I brought him to Market Geometry to help me with the daily live mid-day Market Geometry mentoring sessions. He's been with me for six months and has become indispensable.
In this article, I am going to show you my re-creations of a week's worth of charting of the e- mini S&P that Shane showed members live in our mid-day sessions because they tell how a professional approaches the market, prepares and waits for a trade entry, and then executes the planned trade flawlessly. He embodies what I try to teach at Market Geometry, and I hope you find this set of charts and the story behind them from a recent week in the e-mini S&P futures interesting and informative. I know I did!
Shane generally charts only five-minute bar charts of the e-mini S&P futures. This means he is often staring at gaps created from the overnight action. Many traders do not like to deal with gaps or have trouble dealing with the meaning of them, but Shane finds that gaps carry a great deal of information that he can use when mapping a market.
I tell this next story to my students often to encourage them to think outside the box. In the early 1980s, one of the largest currency portfolio managers in the world kept three separate sets of data and charts for each major area of the world. He would keep data and charts on the New York currency markets, a separate set of data and charts on the Tokyo currency markets, and a separate set on the London markets. Odd as it sounds, he would take positions based on the eight hours of the New York markets, positions based on the Tokyo market hours, and positions based on the London markets, and yes, at times these positions conflicted. His thinking? Each of these money centers had flows that had to be dealt with and his data, charts, and positions were based on the flows for each of the three money centers.
Back to Shane's chart: The majority of the money that flows through the US stock markets flows when the US cash markets are open, and they are best represented by charting day- only session charts. Another way to represent the flow of cash that is popular with larger traders like myself is to chart day-only futures that begin at 8:30 am CST and end at 3 pm CST, which mirrors the beginning and end of the New York Stock Exchange's main hours and the majority of the US stock market cash flows as well. I personally like to chart 13- minute or 39-minute day-only charts that begin at 8:30 am CST and end at 3 pm CST, because it gives me a unique look at the US stock market. (Yes, I ignore the final 15 minutes of trading of the e-mini S&P futures on these charts because the cash stock market has already closed.) But these are my re-recreations of Shane's charts:
Now he begins to add potentially important details to his market map. First, he makes a copy of the red, down-sloping simple trend line and transfers it to the morning's high of the same day and notices it catches the close of the day as well. He leaves this new parallel simple trend line on the chart and measures the distance between the two lines.
Over the years since this information was published by farmers as a simple guide to help each other hedge thevalue of their grain crops, several well-known analysts have taken this information and put their own name on
Price did consolidate in a horizontal trading range for a while, but once again, it broke out to the upside andyou can see that price ran from about $48 a barrel (where it broke out from the first trading range) all the wayto $72.50 before finally breaking below a trading range formed by a three drives to the bottom line around $70a barrel. That's a very nice run in crude, called by a very simple and easy-to-use trading tool. Is the top now infor crude oil? That's isn't the point, actually. The point is trying to capture the move from $48 a barrel to $72 abarrel.
Here's a look at the CBOT mini Dow futures. You can clearly see the three drives to the top marked, as well asthe three drives to the bottom. On this chart, I use a Median Line, or pitchfork, to show the probable path ofprice, but your eyes can easily see the lines that I could have drawn in to connect the three tops and threebottoms. And the break below the three drives to the bottom line is easy to see, and the results quitedevastating.
the three drives to the bottom line is broken, the resulting sell off is a swift one! If you look carefully at this chartand the prior chart, you may find that price did pull back to a logical place for you to enter a short position.
This is a chart of the Nasdaq 100 Futures from the same day. Note the same three drives to the top and threedrives to the bottom that form the sloped trading range. And note that price is just now breaking below thethree drives to the bottom line.
So, let's now look at what the market did after it broke the three drives to the bottom line. The market's movewas more elegant and the geometry was right out of the math textbook Euclid wrote in ancient Greece 2300years ago! Price retraced to test the upper Median Line parallel, giving traders a high-probability area to entera short position and then collapsed. And if you simply measure the move, price made a perfect 1:1 movementto the downside, meaning it moved as far down from the retracement as it did in its original fall that broke thethree drives to the bottom. And that measured move tested the red, down-sloping Median Line perfectly.Where you would expect price to run out of downside directional energy?
Here's a non time-based 24-hour chart of the e-mini S&P futures. I have clearly marked the three drives to thetop and bottom lines, and you can see price is now breaking below the three drives to the bottom Line.
Now you can see that the second and third drives to the top and bottom, and price, have clearly broken belowthe three drives to the bottom line. This is how the chart looked as we studied it during the pre-market morningsession, between 6:30 am and 7:30 CST.What will price do now that it has broken below the three drives to the bottom line? Remember, it's more thanhour before this market officially opens. I feel the first hour of trading is generally chaotic, because hedge fundmanagers and stock portfolio managers spend that first hour balancing their positions, not making directionaltrades.
When I looked at this chart during the pre-market session, I imagined that the hedge fund managers and stockportfolio traders would have enough balancing to do to keep prices within a trading range and hopefully giveme a chance to enter a short position at a high-probability area. Then I thought prices would eventually beginan accelerated selloff.
Let's see what the market did on the opening that day. Price sold off immediately, and in a near-verticalfashion. Price came down to test the red, down-sloping Median Line, but I still had not found what I considereda high-probability entry. Then, price slid closer and closer to the upper Median Line parallel, leaving threedrives to the top and bottom, if you look closely:
Once price tested the red upper Median Line parallel, I entered a short position with an initial stop loss orderabove the prior swing high. Note that price is also testing the pink, lower modified Schiff Median Line parallelfrom below, and this is another reason why price should run out of upside directional energy. This is an area ofconfluence, where two outer Median Lines cross to form an Energy Point.
Price plunged after testing the red, down-sloping upper Median Line parallel (just above 923.50) and tradeddown to test the first Warning Line of the pink Median Line set at 909, where I took my profits.
It's often difficult to find a high-quality entry in a market once it has gone vertical, but if you are patient andknow your tools, you can usually find an entry when price pauses to catch its breath, right before the ride onthe slide resumes. 9
Thanks for spending time reviewing the market structure during your morning sessions. This (chart of the) EStoday shows a good example of the 123-hit-the-range-then-break set up the range test 1-2-3 or however it iscalled. This was another great trade today using the stuff you have taught me in the morning sessions. Again,thanks for your teaching efforts as they have improved my trading."
Dave chose to sell the top of the 1-2-3 range at the test of the down-sloping upper Median Line, anticipating abreak of the bottom of the range, and he put his stop above the prior swing highs, much like I did in my owntrading.
Wayne T. waited for the three drives to the bottom line to be broken and then sold a re-test of the midpoint linebetween the upper parallel and the Median Line. He ended up closing his position at 908, earning a nice,15-point profit.
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