1/23/23, 5:22 PM ES Finally On Track For A Green Week?

May 25th Plan

ES Finally On Track For A Green Week? May 25th Plan

Adam Mancini
81
May 24, 2022

In yesterdays newsletter, I talked about the current cycle ES has been trapped in since
late March: Sell to new lows, 1-3 day relief squeeze, then selloff again. This has
happened 4x now with this current “relief bounce” being the 5th. The market loves
though to get traders “conditioned” into a certain pattern, then flip the script
completely, and its possible this is about to happen.
I wrote in yesterdays newsletter that I would be buying the 3890 level today, and while it
did fake below quickly, this level held nicely for what has been an 80 point run today as
we work up the levels. We remain in a bear market in my opinion and I do think we see
new lows with fairly high confidence. However, there remains the setup here (complex
inverse H&S) for a more extended bear market rally. Today, I’ll talk about that, talk about
what the direct sell leg looks like, and most importantly, I will discuss my strategy for
scaling into positions
Before getting into the price action, I just want to briefly touch on position scaling since
it is something that came in handy for me today and is a useful way to spread risk out on
entries. As most know, I do prefer entering into full positions all at once, but there are
certain circumstances where scaling (entering in either two, or four tranches) may be
preferable. For me, these are:
1. If you are doing a knife catch, counter-trend trade long or short. In other words, if you
are shorting a strong uptrend or longing a strong downtrend, or
2. If there is a cluster of supports or resistances in one area, and you don’t have priority
confidence in any of them.

Today’s price action an example of this. I mentioned two supports last night: 3890, and
3860. We are in a downtrend, so because of this I treat all longs with great caution and
size them down. While I preferred the 3890 level, with the 3860 level just below it, I
decided I would use scaling, buying part at the 1st level at 3890, and part at 3860. 3860
never hit, but I did get in on the 3890 as I wrote last night.
I prefer scaling in two ways. Either in two tranches (the 1st entry is a 25% position and
the second entry is a 75% position) or in four tranches (1st entry is 10%, 2nd is 20%, 3rd

https://tradecompanion.substack.com/p/es-finally-on-track-for-a-green-week?r=slmk7&s=w&utm_campaign=post&utm_medium=web&utm_source=su… 1/5
1/23/23, 5:22 PM ES Finally On Track For A Green Week? May 25th Plan

is 30%, 4th is 40%). You can select either one depending on market conditions, I reserve
the second one for extreme knife catches with low quality supports clustered together.
Doing this is a great way to spread entries out while also buying you more room for your
stops. I typically use 10-20 point stops, but obviously if you enter a quarter position say a
3890, then 75% at 3860, your avg cost basis would would be 3867 so you can have a stop
at 3847 and still maintain same risk.
On to the current price action. Price seems to be building a base here since May 12th
and its taking the shape of a “complex inverse head and shoulders pattern”. This does
give ES energy to run a little bit more, and I am currently just trailing a long position
now from today, fully risk free now. As always though, bears are in control of this
market, so it is essential to be prepared for the sell to drop at *any time*. This is the
default state of the market until proven otherwise. We have FOMC minutes tomorrow at
2pm, so expect high trapping and volatility.
For tomorrow:
I am long, small size, and just trailing it not micromanaging. Supports are now 3945-50,
3925, 3895, 3860. At this point, I don’t feel comfortable buying any of these, and I
probably wouldn’t on dips directly. You can, but it is high risk as these are all well
tested, clustered together, and very noisy/non precise now. I would prefer to see a level
test (for example sell to 3925) then spike back up a level (above 3945-50 say) to add any
long exposure here.
Resistances are 3970 (almost there now), 4010 (strong, manage risk), 4035-40 (strong,
manage risk), then 4095-4105, 4155. 4010 and 4035-40 are both strong zones. You could
try a short at 4035-40, but be aware of point #4 below. Bears want to see rejection there,
not acceptance. If price hits the level, dips 20 points, then runs back there, dips again,
runs back there etc, get out of the way. The level is being accepted, and we’re going to
rally. Any short there would be level to level and I’d be taking most my profits at 1st
support down (4000ish likely) as always.
Bull case tomorrow (my primary): We could be in for a chop day before FOMC minutes
at 2pm. Ideally, we could see 3970, pullback there, chop in a wide range testing the
above supports, then rally to 4010, 4035-40 where we’d dip again.
Bear case tomorrow: If ES decides to drop either directly or after FOMC minutes (be
prepared for this), the warning shot would be the loss of 3890. While there is 3860 below
here still, and I would probably bid there with a 25% position, this is the last shot for
bulls. 3860 fails, we begin the sell to 3805 (strong), 3720, 3665, 3620 (ultimate target).

https://tradecompanion.substack.com/p/es-finally-on-track-for-a-green-week?r=slmk7&s=w&utm_campaign=post&utm_medium=web&utm_source=su… 2/5
1/23/23, 5:22 PM ES Finally On Track For A Green Week? May 25th Plan

Realistically, I’d probably initiate shorts around 3840 to 3810, take 90% profit there,
then hold a runner for 3720. You can bid 3805 if your bullish.

In summary for tomorrow: I’d like to see price chop around a little bit under the 3970
level ideally. This could mean dip at 3970, hold 3945, return to 3970 etc. Bulls want no
lower than 3890 on any downside. After this chop, rally to 4010, 4035-45 then dip again.
As of now, I do favor that dip off 4035-40 is bought for another leg up to 4095-4105, 4155,
but as usual, its level to level for me. Do not try to “forecast” this market as the market
will ruin 90% of them: React to what to what price is doing in real time, take profits
quickly at 1st resistance, leave a runner, get stopped out on it, then reset your bias as if
seeing the chart for the 1st time. This is the key to account growth.
I am currently just trailing a long still, will likely exit more at 3970 then if we seem to be
defending those supports mentioned tomorrow I will get back long again on acceptance
of 3970 for another leg up.
Shorts for me are below 3860.

Methodology & Useful Links

1) My trades are always level to level.
Level to level means get in, take profits first resistance, trail a stop, get stopped out, reset bias
completely. Do not get attached to any one “forecast” as price will spoil 99.9% of them in
these markets. This means if a resistance clears, the next resistance up becomes target, and
that cleared level is now support that then must defend or price unravels. For example (these
levels are just example levels now not actionable ones please refer to above post for current
levels): 4708 clears, 4745 is target, 4708 now support. This way its always clear what the

https://tradecompanion.substack.com/p/es-finally-on-track-for-a-green-week?r=slmk7&s=w&utm_campaign=post&utm_medium=web&utm_source=su… 3/5
1/23/23, 5:22 PM ES Finally On Track For A Green Week? May 25th Plan

targets are and where the nearest support/resistance is. This also applies if it a support
breaks. For example, 4650 support fails, 4605 is next level down and 1st target, 4650 is now
resistance. I almost always take most my position off at first target (60% at least, sometimes
all if the level is strong and the trade is counter-trend). I make these determinations in real-
time depending how price looks. This is what level-to-level is, trade one level at a time, don’t
look beyond.
My basic theme is: Enter at one level, take most profits at the next immediate level (60% to
100%), trail a stop on the remainder, then when stopped out, reset my bias totally.
2) “How do I know a level has broken and what stop size do I use?”
These two questions are deeply related since they both pertain to how much noise to expect
around a level. I am often asked this and there is no hard and fast rule that works all the
time. Generally, I give levels 10-18 points of space and this also the size I typically use for
stops (I would say my average stop is somewhere around 13 or 15 points). In other words, if I
am buying say 4280, my stop will typically be something like 4265. *MORE VOLATILE
MARKETS REQUIRE MORE SPACE*. I will never exceed 25 points though for a stop and in
very wild markets this is the max I would use typically markets are very volatility. I reduce my
size accordingly to compensate for the greater risk of wider stops. In other words, if markets
are massively volatile (like January 2022) and I am choosing to use wider stops, my position
size will be smaller.
While levels will fake through quite often, a good level often won’t fake through more than
that stop range (13 or 15 points). Important, if it does, it will spring back, fast. A very good
sign a level has failed is if it breaks by that quantity, then just hangs out at the edge of the
range. For example, if 4650 is support, price fails to 4636, then stays there for 10 or 15 mins.
This is an excellent sign it has failed, there is no demand there, and to look to next level
down. Of course, *nothing* works 100% of the time in markets. No rule, no pattern, no
strategy. There will times when price runs through a level 15 points, stops you out, then
recovers. Part of the game. Trading is probabilities. The key takeaway though is that all levels
are zones, not pinpoint precise points (though often they are, which is always nice!)
3) When it comes to trading levels many people will enter instantly on a test of a level. I only
do this if I am confident in the level (nice long-term trendline. preferably on third or 4th
touch). Otherwise I want to see how price reacts at it first. Signs a level is holding is price
running below it a little then recovering to put in a lower time frame hammer-type candle, or
an immediate strong reaction. If a support is 4705 say, and its a level I’m not confident in,
and price dips into it then just pauses there and hovers, I won’t be getting long. I’d want to see

https://tradecompanion.substack.com/p/es-finally-on-track-for-a-green-week?r=slmk7&s=w&utm_campaign=post&utm_medium=web&utm_source=su… 4/5
1/23/23, 5:22 PM ES Finally On Track For A Green Week? May 25th Plan

it wash out and reclaim first. Price *loves* to lose a level then recapture it, and buying on a
level recapture is a very often a fantastic entry.
4) The concept of “acceptance” vs “rejection” of a level is a very important. When price
“accepts” a level, it usually means basing around the level, which suggests the level will break
through. Acceptance usually looks like price hitting a resistance, dropping a little, pushing
back, dropping, and just seeming like it can’t push off it (vice versa for supports) When you
see this, you can get long (or short) for the breakout to front-run it. It takes lots of screen time
to recognize this dynamic.
5) My scaling strategy found here:
https://tradecompanion.substack.com/publish/post/56363878

© 2023 AM Trade Companion Inc. ∙ Privacy ∙ Terms ∙ Collection notice

Substack is the home for great writing

https://tradecompanion.substack.com/p/es-finally-on-track-for-a-green-week?r=slmk7&s=w&utm_campaign=post&utm_medium=web&utm_source=su… 5/5