Rethink the trap-zone again

Below is my definition for the trap zone:

The trap zone is a price range with high price and low price boundaries in a given time frame between two money-making zones:

• It starts at the end point of the previous money-making zone
• It ends at the start point of the next money-making zone

Many real time examples of a trap zone in the NASDAQ 30m chart have been shown here very frequently. Here is a link to a chart for your review.

Below is my classification of the trap zone:

• Bullish trap zone
• Bearish trap zone

The life span of a trap zone:

• Life starts at the end point of the previous money-making zone
• Life ends at the start point of the next money-making zone

The trap-zone is always dynamic, and its dynamics has been described before.

High-frequency trading

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Use the Stop-Limit order to trade a short term trap-zone breakout

Use the Stop-Limit order to trade a short term trap-zone breakout pattern!

The Stop-Limit order means

• Once the stop price is reached it will become a limit order to buy or sell at the limit price
• It's good to catch the quick move momentum
• You can relax and let the market to fill your order according to your will

For example, one stock ABCD Inc. is forming a potential short term trap-zone breakout pattern in 15m chart:

• Forming a UP pole from 10-12.50
• Forming a trap-zone with width of 2.00
• MACD is bullish up during the trap-zone
• 5ma and 10ma becomes bullish after a golden cross
• Apparently, two or multiple bottoms have been formed
  

Assuming the breakout point is 12.00, then put in a stop-limit buy order with stop at 12.01 and limit at 12.01 will means:

• Once 12.01 is created in the market
• The order will buy ABCD Inc. at 12.01

The expected profit taking target is: 12+2=14 or 12+2.5=14.5

If you want to watch the market, then you can exit when next trap-zone is formed.

You also can use the stop-limit order to sell and take the profits.

For shorting a DOWN trend stock, the same rules can be applied because there are bearish trap-zones as well.

KEY things to remember:

• Put the position open and position close orders when the market is closed so that the market fluctuations won't hurt your judge
• Never be emotional, stay cool ( greedy ? or fear ? too happy ? too sad ?)
• Just let the market carry out your orders as you planned (even you missed a big GAP)
• Each trade could be done in 1~3 days, sometimes, but very rare, may be 5 days (or even longer)
  
• Signals show up pretty often
• Profit margin not very high, but pretty reliable, so could be scaled to large principles
  

After each trade or each week (may be each month, each year)

Review your trades, think hard and improve the trades! Especially, if the market can not carry out your trade plans as you planned ahead.

the trap-zone gets extended and becomes

tighten today as well.

One feature of the trap-zone is its dynamics, which has been discussed before. It will never be static, unless the trading of the stock is halted !

Usually, the dynamics of the trap-zone will indicate the direction of the next money-making zone once the trap-zone is completed.

As discussed recently, the bulls have tried to breakout the trap-zone for three times so far, will the 4th time test be real and broken out ? Very very possible. But, never guess ! You know, that's a good trader's habit and my trading philosophy! Never guess what the market is going to do ? Simply because it's the market that leads us ! Just let the market makes its own decision and follow it.

On the other hand, please notice that bears also tried to breakdown twice.

Another 10 bagger stock pick is almost doubled today ! Very nice. When I alert CLFD here on May 11, Its low is 1.16.

All of our 10 bagger stock list have been doubled since alerted here in May!

This simply tells us a truth, after the market established the trend in March and April, then follow it in May, we still can win ! Therefore, never try to follow the trend in a hurry ! The market has always given us and will continue to give us plenty of time to follow it! The KEY is to follow it in the right direction !

The concept of the money-making zone

Below is my definition for the money-making zone:

The money-making zone is a trend in a given time frame between two trap-zones:

• It starts at the end point of the previous trap-zone
• It ends at the start point of the next trap-zone

A real example of a money-making zone in the NASDAQ 30m chart is shown here before when NASDAQ hits ~ 2010 on 30-Jul-09. The power of the money-making zone is also very clearly demonstrated here: the NASDAQ jumps from ~1953 to ~ 2010 in ~ 3 hours. That's 57 points in about 3 hours.

Below is my classification of the money-making zone:

• Bull's money-making zone (Bull-MMZ)
• Bear's money-making zone (Bear-MMZ)

Apparently,

• the money-making zone with a UP trend is the Bull's money-making zone (Bull-MMZ).
• the money-making zone with a DOWN trend is the Bear's money-making zone (Bear-MMZ).

The life span of a money-making zone:

• Life starts at the end point of the previous trap-zone
• Life ends at the start point of the next trap-zone

The power of the trap-zone

Please refer to the chart below:

• 2 trap-zones have been marked
• one is bullish, the red one, which is already marked previously.
• one is bearish, the purple box, which is plotted last night.
• The possible transition of the bullish trap-zone to bearish trap-zone is broken because both become embedded relationship, which marks the end of the confirmed DOWN wave. This might be very quick for some people. But after a UP wave, there will be another DOWN wave. Remember my previous post regarding the coming three waves.
• The up-boundary of the bullish trap-zone, namely 2012, has always been a strong resistance for 3 times so far. That's why I call the market will hit 2000 again. In just two days, the prediction is fulfilled. No magic. Just based on the trap-zone, which is also powerful for trading.
• Each time the market hits about 2010, it will come down, the first time drop to 1970, the second time drop to ~1960, the third time ????, make your best shot or let the market tell us in several days. This is the way to trade the trap-zone, if you have to trade. Sell at the up boundary, buy at the lower boundary ....
• The market motion will be limited in the trap-zone area, unless the market makes the decision to break out or break down.
• So far, the market favors a breakout and run up higher again because it already tried three times, a pretty bullish sign. But again, never guess, the market will let you know at the right moment. Then just follow it then.

What a good lesson this morning for those

who want to be a bear in a hurry and worried about missing some profits. Below is quoted from one reader's comment:

"This down wave already fell 50 points from 2012 to 1962. Do you think it is still in trap zone and not allowed to trade until we reach the real bottom. If this is correct then we will miss 50 or 70 or 90 points possible gain."

Such thought is not good at all ! It will SURELY hurt your trading because it is thinking the wrong thing!!

Again, the only rule for this game is NEVER HAVE A LOSER TRADE.

IF you can continue to win 5% gain in a year for only 50 times, your total return will be more than 1100% !!! In 2 years, the total return will be 13100%! In 3 years, the total return will be 150700%! In only 4 years, the total return will be 1729200%! You can beat anyone in the market so far !

The question is: can you keep the winning rate very high and scale your principle up to at least 10M ?

The market is a POWERFUL slaughter machine instead of an ATM machine. Keep this in mind and think twice for each trade will help us increase our correct rate !

I suggest to read "good time and bad time to trade" again !

A good trader need to be patient, need to learn how to relax, and need to know how to watch the market very closely for real opportunities ....

No position is worth holding if it is not making money because the position equals the RISK.

Watch the amazing sniper shot and learn how to shot in the market as well:

the DOWN trend is confirmed

The DOWN trend is confirmed, technically, based on my unique stock price development model !

This DOWN trend has been expected since 1995 ! But finally, it is in a shape now !

From the chart below, a bearish trap-zone is in the shaping, which is marked with a purple box !

According to my unique stock price development model, a transition from the bullish trap-zone to the bearish trap-zone is a STRONG signal for the trend reversal !

Another conclusion based on my theory: a money-making zone will be very expected for bears. Namely, breakdown 1960 is almost a certain thing so far.

The big concern for the bears now, according to my own theory, is the RED bullish trap-zone, which has not been broken down yet so far. But I don't expect 1940 can hold too long. I don't want to guess here. So let's dynamically watch the market development very closely !

But anyway, please also notice that we are still in the BIG RED BULLISH TRAP ZONE, so now still in the stage full of false moves. A good trader should be able to wait for the SURE signal ! Some friends commented that we might miss 50 - 90 points. This is not good at all. The MARKET will teach such greedy guys a HARD LESSON sooner or later ! We have to try to catch the SURE opportunity even if only 5% gain each time. But if you can continue to win 5% gain in a year for only 50 times, your total return will be more than 1100% !!! In 2 years, the total return will be 13100%! In 3 years, the total return will be 150700%! In only 4 years, the total return will be 1729200%! You can beat anyone in the market so far ! The only rule for this game is NEVER HAVE A LOSER TRADE.

Always keep this in mind will help us to grow with the market, which is a very POWERFUL slaughter machine !

Regarding the DOWN wave target

Below is a copy from my reply to a comment:

Regarding the DOWN wave target, my idea is: DON"T GUESS A BOTTOM ! I have mentioned this idea before.

Never guess a top or a bottom !!

Otherwise, you will be trapped by the market.

Just follow the trend, follow the inevitable POWERFUL move. That's the way to make money in the market.

Guessing top or bottom will lead you to a trap ! Why ? Think it for a while by your self !

I can share my view: guessing top and bottom will make you want to sell at the top and buy at the bottom, which is very dangerous. The topping and bottoming process is full of false moves, one mistake could kill your position very very easily !

Nobody knows the exact bottom or top because the nature of both is randomness. And the process to make them are very very emotional. If you don't understand this, the market will TEACH YOU A HARD LESSON sooner or later.

So, what we really need to do is to dynamically follow the market! That's all ! To make money in the market requires no top and bottom GUESSING.

For example: I have mentioned three targets of the DOWN wave:

1. Filling the gap

Once this is completed. If the DOWN wave continues, then it will drop to the second target 1960 after a bounce.

2. 1960
Once 1960 is reached. If the DOWN wave continues, then it will drop to 1940.

So you see the TREND very clearly. Right ?

If this DOWN trend continues after the bounce from 1940, the next one is 1900, and 1880.

Unless the DOWN wave changed direction, it will drop to the next target.

OK. Follow the trend unless the trend is reversed! Never guess the top and the bottom because the market could be bottomless or topless, theoretically, in the extreme conditions.

I usually use the trap-zone and money-making zone to check the trend reversal. For details, please READ carefully the articles in the side bar column Technical Analysis Tips

http://tjts.blogspot.com/2009/05/technical-analysis-tips.html

I will apply my theory to dynamically follow the market here so you will be able to see how I apply the theory to application. I am learning how to apply the stock price development model and then improve it during the process as well.

It's very hard to explain here in a few sentences.

WARNING: the expected DOWN wave

finally comes now.

Actually, It starts from the ALERT before !

As mentioned before, the tasks of this DOWN wave is the following:

1. fill the gap up
2. test 1960, the boundary of the embedded trap-zone
   
3. test 1940, the boundary of the trap-zone
   

The first task filling the gap is already completed this morning !

So please keep close watch at both 1960 and 1940 now. More detailed charting will be presented later.

Yesterday, I thought the market's re bounce target is 2000. So far, it seems the market is very weak. I hope you are not caught by this long expected DOWN wave !

Tomorrow NASDAQ should be able to see 2000 again !

Tomorrow NASDAQ should be able to see 2000 again !

As expected in the lunch time, the market strongly bounced back this afternoon. The mission of this short DOWN wave since last Friday's 2010 is three folds

1. fill the gap up
2. test 1960, the boundary of the embedded trap-zone
   
3. test 1940, the boundary of the trap-zone
   

So far, the gap has not been filled yet.

Tomorrow, I expect NASDAQ should be able to see 2000 again ! IF not, then the three-fold mission of the DOWN wave will continue ....

Please also notice that

After AIG's massive run up, FRE today gap up and run up more than 125% with HUGE volume !

The FRE AUG-09 $1.00 CALL jumps 1400% in one day !

What is the market doing now ?

What is the market doing now ?

Very simple, trapping more bears or bulls, according to my stock price development theory.

Last Thursday, I have mentioned 1960 and 1940 are the two targets for bears if the bulls failed to break out 2020 in the next few days. here is the previous post.

Since bulls already reached the target 2005 last Friday. According to the symmetry principle, bears have a good chance to hit the 1960 target soon.

The whole pattern of today is a continuous down wave from 2010 last Friday. The target is to fill the gap up of last Friday. So far, the gap has not been filled, which is pretty good for the bulls.

I will expect, sometime this afternoon, a strong UP wave. If not that STRONG, then hitting 1960 and fill the gap will be real and will happen pretty soon.