Why Buying Qs Was A High-Probability Trade
If the trader observed the market
thoroughly, he
could find several factors that helped him to determine that going long on QQQs
was a high-probability trade.
Market was
short-term oversold.
The price
had a sharp sell-off with five consequent days with lower lows and highs; most
of them were the wide range bars with poor closes. This combination often leads
to reflex contra moves in the opposite direction.
The last bar
was an inside narrow range bar (the narrowest in 12 days), which puts the price
in a breakout mode and often leads for a trend day.
The green
line (a) is the distance between the top of the Head and the point of the
breakout of the Neckline in the Head-and-Shoulders formation. The red line
(b) is an exact projection in angle and distance, which often serves as a
target for the potential end of the move. So there was a sequence in time and
price for an upside potential that day.
There was
a strong combination of buy signals on Market Bias Page.
NYSE TICK went below 1000 (and
sometimes much more then 1000) for four consecutive days, which often leads to
two-three day corrections in the opposite direction.
The factors described above
were pointing that the move to the upside was a high probability event.
Nasdaq
Composite performed best in the very short-term among three major indices as it
held its previous day low, while S&P 500 and Dow didn’t. Beside that it has a
greater average daily range then the last two indices. So, Qs were taken as the
trading vehicle.
The next
day market open flat, began to sell off, but quickly found the low at the first
forty minutes of trading and reversed to the upside. The entry for the trade was
above previous day high with the stop below previous day low (I’m speaking from
swing-trader’s point). The easiest way in taking profits in this case was to
exit on close on half of the position and to leave the remaining shares on the
next day with a tight trailing stop, considering the fact that you’re swimming
against the tide.
Bottom Line
It is always
prudent and safe to trade in the direction of the trend. But when the
probability is high for a contra move and a swing trader is able to recognize
it, it is profitable to participate in that move, keeping in mind that the trade
would usually be shorter in time and in distance.
 Best
of luck with your trading.
Pavel
Pavel Nikonov is a long-time TM
member who lives in Russia.
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