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17  I micjKi be long early in the day, and then soniebmo tater I might find myseff shorh J moy even have time to enter the market three additional limes in the opposite direction from my originaJ trade. Im noi talking about reversing a had trade here, tfiai vill come later. What talking about is flexibility in my pfanning. Wfiat getong at is having a mmd-sct that realises lhat sucfi things can occur, and a plan that allovvs for such eventuafiiies, Wfien tfiere is an outside tJaVr I my tactics. 1 stiil enter and exit as before, but my strategy has what to do in stich a situation. no [ lanr e aid out for me Gaps How do I handle gaps If prices gap past my eritry congestion, I let my trade go by. BUT IF prices trade back into my congestion, then I take a breakout the same as I originally planned. Heres wfiat I look for: open - <- Buy yap opening ftjMuueil by a retraceneiit in yesterdags tiaJiny raiye before yesterdAys IiiyJi, folloued by nore c:oiiyesliDn lodafj. and then breakout. 1 ial:e tfiis kind of tr.ide. rjote that prices must again congest at or about the same level as tlsey did on a previous day. The previous matching congestion cou!(f fiave taken place up to three days ago. "here is one other way I will trade after a gap 0(:on. Ii is it prices gap open, then retrace through a prior trading range, and then b.eakout in ifie direction of the open. ---tJl (-Sell 2Txd t itie tlirauyh rjp openitvj, rally b(ck thiourtb prioi conciestioiij tlien a lirckhut of that congestiovi in Ikr direction af t}it; open. Now, v/!iat do I do about false breakouts? Ill .liow tfiat last ch-irt ngnifi.
ih-t I had taken breakaut of tlie lou sllQUn At tlie dotted Hue- ir stopped <- cul here* , I -> get a (se !. [ qo it) uJiim T prices - break tlirougli ill. First Break Versus Second Break The second atJeoifjt at entry shown above brings up another point I need 3n KJnf; (jut about rny trading. VV[iat Im about to show is a matter cl lOice. Tbefe is a mnre conservative way i.o trade iliese breakotJts of congestion tlia: lake place prior to tha actoal breakout wbicfi is ba.ed upf>n tho entry bignaf. better make diat more ciocn may ije about to take a trarJe that is based upon a breakout of tlie congestion I antnapate wiil be a breakout ;hai will fulfill the requirements of one of fny entry sigrials. For instance, a market may be just about ready to take out the high of a trading range, I aai looking for a congestion just prior to such a breakout. Up until now Ive shown my tecfinique as being that I take the FiPST breakout of ttie congestion prior to the actoal breakout of an intermediate or major entry signal, Hov..cvcr, a more conservative approach is to take a second breakout of tJie cortgestion. By doir>g so, a lot of good trades wifl be miisscd. But also, a 01 of shcrter term fa;l-i)acks will be missec, illustrate Vh/hai talkino jou: on "jic next page. In part it 14 a matter of peiceptinr CL S MIMUTE  IsL line tJir(>it[di> irir ? I 11 jiT - SeU Znd breakou t I < 1>.1!>. . l-..IlI ili Mil.I lll.Mb,M,].l I 11 i - 1 >-1- > >l 3510 3435 34B0 3165 3450 3135 31Z0 3105 3390 3375 3360 3315 3330 3315 3300 3Z05 3270 3Z10 3225 .3210 3135 3100 3165 3i5Q 3135 I .i.lE fJotice. the second dme through has to take out the low of d;e first time through. On the foreshortened d ren-ioved sorrie of the price bars in the m.iddle) crude oil cliart Ive shown, prices congested around tle low of the previous day at point , aiid then congested there again after the open on i\\e day shown at point B. Wh.en prices broke through the congestion lovs at 3260, a short position would have made costs on the first contract-set. and anotficr ten points or so for Tfte second coniracl-seh Then a rally hack woukJ have taken out tfie break-even stop at 3260 and tfie trade would fiave been over. That is what actually happened the vay I traded it. l-lowevf!r, fiad I waited for the econd breakout sfiown at pomt C, the rcsi.iits would fiave been nore spectacular for tf>e tliird contract-set, even thougfi tfie entry would have been at a lower point, arourid 3240. Sometimes there is no rally tiack and tlie irade is entirely missed, C-jl vjfien there is a rally back, and ir.en a second penetration of the congestion area, the charices are higher for niaking profits. Trading the second breakout is jart and parcel of my minor entry signal, and s(; the last example was a perfect lead in for the next topic. ±
But before we get Jullv mtc it. Ive just got show this absolule!/ picture perfect trade I miuJc in gnfd the day writing this. GC 5 1 Congest ion at yesierdays lou,  TJ t .Cnngtst ion in sAme place At ted Ays -> gap opem.  -Tl, Tills is tJie kind 1 Hue for? iijiiti. <,In!., ,1. Ih I I III I,.l.ll ill. i l.ll ll.....i .,f Heres til! breahJti t. El i i, I 111;.. 3000 3B75 3B7G 3065 3G55 3B50 3010 3G35 3B30 3825 3B15 301G 3805 ¨ 3795 3790 3785 7 0 3775 3770 3765 7&0 3755 Chapter 18 fratling ih; Minor [:inry Sis:,na Tfie last linKj I really mentioned the minor entry signal was clear : in Cfiafiter 5. L(h ith? urpeat tim signal, and tfien I can go on to sfiuw how to trade it. It is iiot ny tavorde trade. I would ratfier take a*iy major or intermediate signal afiead of il. Minor Entry Siynals fjly miricfr entry signal is as follows and is optiorial: breakout of itie first trading congestion to foim on ttie chart af[(;r ifie opening, "Ihis may include a corigestion carryover trnrn die pievious day, Tfiere is matter of cfioice here - I cin take either the hrst or ilie second breakout of ths congestion. The second brcctkout is niore coriscrvatJve of the tvwo methods, bLJt as witii a fiiyher priority signaf, die second breakout, while safer, often results in missing the ent[re move. I have a tendency to take the first breakout if tlie coiigesuon proves to t)e very long and meanderrng in lengtfi. Otfierv.ise, I prefer a second breakout. Tfie first breakout often does not have mucfi tluust behind it, unless it is a continuntitfn carryover from tfie previous dav- When the first cnnge.tion is coincident with a rnore major signal, then it is traded as sucfi. Otherwise, it is traded on its own merit. Just such a congestion occurred in gold the very riext morning subseguent to the beaulifu gold trade sfiown in tfie chart above, Hores the way it looked.
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