Price Coil Creates Powerful SP500 Trade Setup
October 4, 2012 at 11:06 PM (QQQ)(DIA)(SPY)(GLD)(FB)
Price Coil Creates Powerful SP500 Trade Setup
Whenever we see extended price consolidation at a Weekly Trading Zone we anticipate a powerful move. Today was certainly no exception. The most difficult aspect of trading a consolidation, or coil as it is often referred to is patience. Price spent a total of 14 hours coiling at the 1451/1452 Zone before we called an entry based on the hourly chart and a secondary chart pattern which I will be teaching in the near future. Just before the Live Trading Room session ended we suggested that if the market presented the opportunity to buy 1451 on a pullback that the upside potential was significant.
During the 30 minute break which we take each day between the Trading Room and the Emini Daily Radio Broadcast the entry was triggered and the trade only suffered a 2 tick draw down. On the chart below you will see the entry highlighted by the first yellow arrow. The initial target in this case was the previous swing high at 1457.75 which occurred 2 candles prior. Based on recent market ranges an intraday shot at 6.75 points for a 2 point risk is very acceptable. The previous swing low was 1448.75 so using as much as a 3 point stop for a potential gain of 6.75 is still in our book well worth the risk.
(ES) Hourly Chart SP 500
Price coils or consolidation are very easy to spot on a chart especially when they occur at pre-determined levels such as a Weekly Trading Zone. Once you learn to spot it, all you have to do is wait for the inevitable price breakout. Being able to recognize them early on as they form will give you an incredible opportunity to be on the leading edge of dynamic market moves.
The reason price coils is very much akin to the reason behind a Doji - indecision. Buyers and sellers have balanced each other out and both are waiting to see who flinches first. Eventually the dominant market participant will show their hand even if it takes 14 hours or 14 days.
Always be alert to any scheduled economic reports or breaking news as this pattern is simply a tinder-box waiting for a spark. A sleepy market can quickly become a raging inferno when conditions are right. Walk back through previous charts, multiple markets and multiple time frames to help train your own eyes to begin spotting these profitable trading opportunities as they take shape.
The second yellow arrow on the chart above highlights a spot to consider taking profits and or moving your stop to break even or better. We have 3 good reasons:
- Price closed south of the CF_MA1 (backbone of the CFRN Indicator Set)
- The first candle is a Doji - indecision
- The second candle has a bearish close
Whenever price closes south of our primary indicator we anticipate lower prices. Likewise, when it closes north (above) we expect higher prices. This may sound simplistic or elementary and it is. Remember our slogan -
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emini futures, price coil, sp500 
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