Saturday, March 28, 2009

Sanuk

Wikipedia tells you it's the Thai word for fun. A fitting name for a trade setup I recently got introduced to. Trading is fun. The trade will or will not work, nothing you do can change that, once you have committed yourself to be in the market. So why is it relevant, whether this individual trade works? 25 trades should show you a profit overall or your setup has some flaws, but one individual trade...it works or not. Nothing you can do. So be relaxed, have fun and let me tell you about the Sanuk trade and how I understand it. Bruce will correct me, if I got it wrong, I'm sure.

Markets move in waves up or down. If the trend is down, you see lower lows and lower highs. If the trend is up you see higher highs and higher lows.

If in a downtrend you suddenly see a higher high than the previous high, something has changed. The Sellers are no longer able to sustain the constant selling.

If in an uptrend you suddenly see a lower low than the previous low, something has changed. Now the Buyers are no longer able to sustain the constant buying. Here's the chart behind that theory:

Pic_0022

Take a look at this CL chart. Prices making lower highs and lower lows. Near the bottom you see a double top in the downtrend and the Low of the current move is formed at 17:25.

Globetrader_56

The low has been made at 51.72 and prices shoot up to 52.04 trading above the previous high at 51.91.

You missed that nice upmove, but there was no way to distinguish this low from any other previous low in the downtrend. So either you take all green bars forming in the downtrend or you accept, that you will not trade the reversal from the bottom. (Btw: I use Heikin Ashi Bars, which makes it easier to see whether we are in an up- or downtrend.)

But now we have the chance of a Sanuk trade setup forming.

Looking at this chart, what will most likely happen?

Exactly, Sellers will come in and try to force oil down again. But there are now Buyers in oil, which were able to push oil above a previous high and that means there are Buyers left behind, who did not enter the bandwagon and are now waiting to get a good price to enter oil on the long side. At the same time shorts will now be hesitant to push oil further down by just selling it short, as Buyers have shown their hand and their willingness to step into the market in the 51.75 to 52.00 area.

What does this mean? We are now looking for a retracement and will enter on the first green bar after that retracement has been made. Great! How shall I know, when the retracement is complete?

Look at this chart:
Globetrader_57

I placed a line from the previous high to the current higher high. And I placed a parallel line to it drawn from the low.

We don't go long now, we wait for the retracement to hit that lower violet line and then we wait for a green bar. Using HA-Bars this is the easiest way to tell, when a temporary bottom has been made and prices start going up again.

No hit, but a near hit...you could enter here
Globetrader_58

....or you wait:
Globetrader_59

Long 52.08 or 52.05

Now where is your stop and where is your target in this trade?

Stop first: 51.90 should be adequate and most will go for it. Target can be a fixed target of 10 to 20 ticks in oil, or you use the upper violet trend line, or you do as I usually do and switch to a longer timeframe for targets.

On the 100 tick you see 2 resistance levels:

Globetrader_64

Oil can move fast and violent. So if prices stall in an upmove where you are in and long, you don't hesitate to take profits. The least you do is move your stop up and be sure you use Stop Market orders, not Stop Limits as these tend to get jumped in oil.

Ok, from you entry at 52.05 you got a first target at 52.30 and a second at 52.45. 25 ticks for the first and 40 ticks for the second contract. Not bad at all. As you can see on the 100tick chart oil made the first target but failed to make the second target.


Globetrader_60 

And on the 25 tick chart I used for the entry you can see, that you got quite a lot of warning, that the second target might be elusive:

Globetrader_61

Seeing this you either move your stop up to the 52.10-52.20 area to secure some profits or you close the trade for a nice profit.

Trading should be easy, it should be fun and your setup's should provide you with consistent profits. They don't need to be big, but they have to be consistent. This setup helps me on that path.

The setup is not my invention. As I said, I got it from Bruce and you can find him in the Sanuk Google group, if you interested and take the time to look for him. Access to the group is by approval only.

4 comments:

Eyal said...

On Sanuk - it also implies something that you do completely out of free will for pure pleasure. In contrast when something is not Sanuk then it's a burden / chore.

For the pattern, if you like the HH, HL thing check out also the AHG thread on ET.

Nice blog btw, recently started reading. Keep up the good work.

cory said...

AHG has evolved on his original idea so I don't know how much of his ideas are still in used. I also think his ideas were kind of unnecessary complicated. They lead to 'analysis paralysis' syndrome.

Kalle said...

The Sanuk somehow reminds me of the good old 123 top/bottom pattern described by Joe Ross ... using the Trader's Trick. Instead of a parallel line you could also use a Fibonacci retracement for an entry level.

Just my two cents :)

Anonymous said...

nice idea.. thanks for posting.