Two Ways To Avoid Being Head-Faked

Each day brings us one day closer... to some good trading. I have a colleague if mine in San Francisco who is always optimistic, (and not in such a manner where his blinders are on), and often repeats this to me when we discuss how dull the tape is.

I will not go into details about future direction (it provides us HVT'ers with no edge anyways), although it looks to be sideways.  But, if you are patient and selective, you will manage to uncover a few opportunities each day. \ I digress.

There is little denying that the market remains firm, albeit it is a trading as odd as I have ever seen it.  Friday for instance I did ONE (yep, one) HVT trade all day.  In my humble opinion, I chose wisely.  So how can you avoid getting head faked and tossing away valuable capital?

1.  Make absolutely sure that the S&P and Nasdaq futures are exhibiting enough range on the 1-minute chart to justify trading.

2.  Make sure you do not trade against the trend of the 1-minute charts.

If you do these 2 very simple things, you will manage to "survive" this market. For those who read Jennifer Highfield's article Sticking With What Works And Following It Over And Over... on TM, I suggest you do.  I am tired of preaching the same message, and perhaps someone else's description will assist those that still find themselves dabbling rather than focusing.

Nonetheless, I cannot resist the temptation to talk a bit about the state of the market. There is plenty of "bad news" out there, although the market continue to take it in stride. While that may be constructive, it does not negate the fact that the market is far more vulnerable to the downside that to the upside. On the other hand, with many a trader, individual investor and hedge fund aggressively shorting yet another bear market rally, the real surprise may very well be a "melt up" not melt down. This scenario was illustrated to me by a hedge fund manager I had breakfast with a few weeks ago.

So, for me personally, I can make a case either way, although I lean towards the bearish argument. So, in the meantime it is high-yielding CDs for the money not in my trading account (IRAs, Joint Accounts, etc). For the first time in many years, I am content to sit and wait, my only trading is taking place on the shortest time frame possible, HVT, for me that offer a very clear edge. If the trade is designed to last more than 15 minutes, I just do not see the risk reward. Mark Boucher and other market professionals, whose opinion I respect, seem to (although I cannot say for sure) indicate that a sideways market for several months is what we need to prepare for.

So, at the risk of sounding like a used-car salesman, take a free trial in my new Trading Room. Why? Simple, if there is one thing that I can provide you in this market, it is restraint.  Selectivity and focus is always the goal, but now more than ever.  This is the constant comment I get from the current subscribers:

"You save me from making marginal trades, thanks."

In Dave Floyd's Trading Room, I offer live real-time audio commentary, analysis and alerts is now available. I encourage you to check it out. Click here for more information.

As always, feel free to send me your comments and questions.