I’ve had quite a few emails forwarded to me from Brad with various questions about the course. He’s going to compile an FAQ, but particularly wanted me to answer the two most common questions, which are:
1) Do these tools work on any market?
The answer is “YES!” These tools work on everything! In the book I made an extra effort to spread the examples across a wide range of markets so as to show as many different variables in terms of markets and timeframes as I could. I used futures, stocks, currencies, and many different time frames. I have not yet seen a freely traded market where these tools do not work.
2) Can I see a current sample chart of my favorite market?
Ok. I’ve gone back and analyzed a few more markets for you which you can see below. Having said that, I’m only one guy, and the number of markets and time frames we could look at is endless. But I’m happy to do a few... Let’s take a look at a futures market, an ETF, and a currency, on medium, long, and fast time frames. Hopefully that will give a good representation of what these tools can be applied to.
If you haven’t already read the introduction to the tools that I wrote, read that Overview before looking at these examples, otherwise you’re not going to know what I’m talking about with these channels and lines. Also, please keep in mind that this is a public page, so there’s only so much I’m willing to draw on these charts.
So, you can think of this as a kind of basic outline, and just realize that you’re only seeing the skeleton here rather than the fully fleshed-out system in all its glory. There’s a TON of extra information that I’m just going to ignore on this page. But, hopefully, what I can show you is enough to satisfy your curiosity.
Some people have commented that the Selene's tools seem to apply more for short-term or intraday trading rather than long term trading. This is not at all the case, so Sean created a long-term S&P chart to demonstrate how the Selene's tools would have traded the market from teh 2020 crash, through the following bull market, and then into the transition into the new downtrend begun in 2022. The following chart and comments below show how a professional manager or long-term trader would have managed these massive moves using the Selene's tool:
As usual, I've marked interesting points on the chart:
A: This was the 2020 Covid crash. The red channel was known as soon as point A was in.
B: When we moved out of this channel, this gave us a Buy signal as we moved into the HUGE light blue channel. Note that we had a price target for this (Target Zone from B), which I've drawn. We're either long the whole time, or we zoom into smaller channels and get long/flat all the way up (but never short!).
C: This is the big top in early 2022. The market is forming a head-and-shoulders pattern here, right on top of our target zone. We've got the pink channel set up here even before we break out of our wide blue channel.
D: We drop into the low part of our blue channel for the first time since point B. If we can't break here, we're long up to the upper edge of the pink channel, which is exactly how it worked.
E: This is the right shoulder of the head-and-shoulders. It's in our target zone, and the pink channel is coming down on top of it. Easy sell!
F: Sell more on the break of the blue line.
G: Sell more when the market finds resistance on the pink channel line!!!
The first target down from point C is shown by the 1st white line. Stops would already have been moved to break-even, with a profit taken there for a chunk of the position.
A bigger target is also shown further down below. If we crash (no guarantee, we alwasy just go with the flow...), and if we get to that lower white line, we are buying. That's a once-in-a-lifetime buy zone if it happens! There is a lot of space on the chart to get there, but it's nice to know exactly what to do and where just in case. :-)
Ok, chart shows Gold Daily. I’m not personally a gold bug, and I’ve never traded this market, but it’s easy enough to analyze. The following chart gives one year of signals and channels for the daily Gold market, starting from today and moving backwards in time:
There’s a lot going on here, so to keep things clear, I’ve placed letters at the points I want to talk about, from A to H.
A: The yellow line is the bottom of the previous channel. When gold breaks through that, it’s a short. This is what we would have been studying this time last year, and the move was quite a nice one, running along the lower channel all the way to August, bringing us to the next letter.
B: There’s a special signal that happens which is very rare. It’s when the market breaks under a lower channel (or over an upper one), usually to tag an important price target before making a spike reversal. It’s an advanced technique, and not part of the bread-and-butter tools that I’d recommend to beginning traders, but if you’re quick you can really clean up in a short amount of time. I love this signal on index futures. You can see Gold drop down to hit the extended target (gray line) and bounce right back into the channel. 99 times out of 100 that grey line is the low of the move. Another fish-in-the-barrel trade happened after the sideways move as we bounced at the lower yellow channel line. I didn’t mark the location, so you have to look for it, but that particular long signal was about as easy as they come.
C: This yellow channel was a short one. Market ran up into price at the gray line at the same time as we had a time target in the pink rectangle (which is a little hard to see.)
D: The downward channel was really just a small correction, and two downward pointing channel lines lined up together to create support here. One came from the big channel at A, and the other came from C. There was another pink time target, which told us to watch out. To be honest, to go long here I’d want to look at the weeklies and see what was happening there first, but I’d have definitely done something to manage the short. As an aside, narrow channels usually mean short, quick moves, and wide channels usually mean long, drawn-out moves. With well-behaved markets, you can gauge the length of a particular leg by the width of a channel it finds itself in.
E: Now we’re definitely long.
F: That pink rectangle is a price target zone. Sometimes you get specific targets, and other times you get a zone. It won’t make any sense why at this point and is a side effect of something that isn’t shown on the chart. Notice that we’re bouncing up against the upper yellow channel line, right inside the rectangle. That’s at least a profit take, and probably a short.
G: Second chance to go short. Check out how that lower yellow channel line held the market up. We knew where that line was before the market even got there. J You had a 3rd short at the first bump up against the upper white channel just after the break, where you could have increased your size.
H: This was another small channel, off the retracement from the big move up that just happened. Target and channel break would have gotten us long again, with our initial stop just under the low at H.
So, how did we do? The only place we might have taken a loss was with that short at C, but it would have been tiny. I guess we still could get stopped under H (it happens!), but that would be tiny too. On the plus side, we caught the move from A-to-B and D/E-to-F, both of which were great, along with a couple other smaller profits on the shorter legs. To tell you the truth, working through this chart makes me want to think about trading Gold!
The following example was produced upon the request of a client who traded Gold and asked Sean to do an analysis of the current setup for Gold:
The chart above presents the current workup on Gold and I'll lay out the key poitns:
1. We'd be long as of the point where I've marked, and were looking for that first rectangle above as our target. I'm not in this, but if I were, I'd have already taken 25-50% of the position off.
2. If we break through the bottom of that channel, we'd go short (assuming our simple bar-to-bar trigger pattern gets us in), and would be looking at the two potential targets that I've drawn in.
3. There would also be a new channel drawn once that happens.
4. If the high gets taken out, and we don't break through that lower channel, those lower targets would have to be recalculated.
5. I think I've probably drawn the channel slightly too large, as I think the top and bottom both actually bounced off of it, and I think we're bouncing off it again right now. Close enough for government work though. ;-)
Now let’s look at USO. This is the popular Oil ETF. There are lots of Crude charts in the book, so I wanted to do something different here and set this one up so that each bar spans a period of 3 days. That’s going to cover some pretty big moves, so this is a well suited time frame for trend following without having to go all the way to weekly bars.
Again, I’ve marked some places on the chart with letters to keep the discussion clear.
A: The downward sloping white line is the upper channel line from before. When you’re trend-following on a long-term chart, you can almost just trade the breaks of the channels and go with the flow. This is probably the easiest way to trade this approach, although the risk:reward ratios tend not to be as attractive as trading in other ways. Anyway, you’re definitely long going into the yellow tube. I’ve marked some gray arrows along the top of the yellow tube up into point B. Those are profit takes, and if you’re aggressive, counter-trend opportunities. I don’t know why anyone would sell in an uptrend, but if you were at one of those places and got a good setup on a faster time frame, it would make that faster time frame trade that much juicier. The small blue arrow towards August 2018 was an additional long on the bounce.
B: Breaking into the white channel tells us the market is definitely going down. There were ways to get short earlier, but using the tools we are showing here, the channel break where we would have gone short. Gapping under the lower channel line is a pretty clear signal that the bears are going to have their way for a while. Note the small red arrow in December. That’s a secondary sell in the channel, exactly similar to the small blue arrow in August when we were going the other way.
C: That rectangle is our price zone for the low. The market slid down and broke there, giving a perfect long setup. We ran up to our first price target (horizontal gray line) and paused. Now this market is going to either bounce here or break and drop. I haven’t seen a technical signal either way that would make me take a specific action (aside from taking profits on the long), so we’ll see what happens over the next few weeks.
We’ve done a futures market, and an ETF, so let’s look at one more. Since I’ve been saying this works on everything, I wanted to look for something really unusual to show. The market I came up with was Bitcoin futures. Not just cryptocurrencies, but cryptocurrency futures! And we’re even going to day trade it. How’s that for exotic?
Following is a 10-minute chart of XBT. I have no idea who would ever think to trade a market like this, but there are bars there, so I guess trades must be happening… I’ve drawn in the most recent couple of channel lines. Notice how wide they are. That makes sense given the crazy volatility you see in this market. Wide channels mean really big swings. Ok, you know the drill by now:
A: That rectangle is a combination of price and time targets. So, we were really interested in the price that rectangle shows, but also at the time too. The market dropped into there and then bounced (or sort of gap-jumped?) all the way up to point B, where it ran into target 1.
B: This was the upper line from the descending channel that has been controlling the market throughout the 14th. We’d expect a pause here, especially with our first gray target line sitting where it is, and we got one. That was actually a short if you were willing to trade counter trend (and could actually get a fill). The market moved sideways from here for the next 17 hours, all the way to point C.
C: This was the first bounce off the yellow channel. This is probably the best kind of setup with these tools. No one (except us, that is!) knows that support line is sitting out there in space since the market hasn’t encountered it yet, so the fills are excellent, and the signals tend to be very clean on that first touch. Whenever you’re long already, those are great places to add to the position as well as an easy point to move your stop under.
D: This is right now as I’m writing this. Looks like XBT wants to break. There’s a time target we’re coming up against, so I wouldn’t be surprised if it happened. But, if the market comes down into the line, and closes up like it did at C, it would be a second pyramid point on the way up to target 2 which we haven’t yet reached. Obviously, this would be a lot easier to trade if there were more volume and the bars were easier to see…!
So, there you have it! That was three more charts on three more markets giving clear examples of how you’d be looking at them within the context of this course. The trend and direction are all very easy to solve for, so the main task after that is to be alert to the lowest risk setups, of which there are many. I hope that gives you all a better idea of how this all works! If you like these tools enough to get this course, I’ll see you in the Online Forum to discuss many more examples and strategies for different types of trading on different time frames…
Best wishes for successful trading,
Sean Erikson
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