A Must-Read Lesson For You
The
daytrading pattern for the major indices
was essentially the same as the previous
two days’, which was Down, Up (to a .618 retracement to the previous swing point
high), then Down into the close. This pattern once again gave us two trends to
trade, which was the uptrend starting at 10:15 a.m. ET and the short trend
starting with the .618 retracement on the 1:05 p.m. bar, which was down into the
close. If you played the initial Trap Door on the 9:45 a.m. bar after the
emotional opening, then you simply had more opportunity.
We can only take
advantage when the trade is there, and the past three trading days have given us
that opportunity, as one should expect coming into an option expiration,
especially Triple Witch and also year-end. You must take the high-probability
trades when they are there because probably close to 100% of your trading
profits will come on 20% of your trades. That applies to daytrading and/or
position trading.
It is not unusual over 10
trades to win four, lose four and make all your profits on the other two. The
eight trades will most often offset each other, but only if you control your
risk. Fifty people could take the same trade from a pattern and the results
would be different for all of them due to how they manage their trades. If you
keep taking the same kind of trades as the herd all the time, your success will
be limited, and that’s if you have any at all.
You must remember that
the unexpected is more apt to be a likelihood than a rare possibility. The
straight trend day is the exception, not the norm, so you had better become
proficient at sequence trading, which is simply a name I give to being able to
trade the market in both directions, especially at the emotional extremes, but
more often the normal market moves each day, both long and short. I will provide
those tools to you in the future.
The markets are perverse
and will fool the majority of traders as much as possible. Up is down and down
is up, that’s why market makers and specialists make money every year and 90% of
traditional traders following herd methodology don’t. If that kind of Holy Grail
herd material was so good, why can’t more people make significant profits? For
many traders, it is not the method at fault, it is the emotions,
under-capitalization, and putting too much pressure on themselves because the
fear of losing money is too great. This prevents you from being consistent with
the need to take the high-probability trades on a regular basis.
We have been getting at
least two good opportunities a day in the major indices, which means many more
in individual stocks. If you are not doing well in the morning action, then hold
your powder until the afternoon where trends are better defined. The other
remedy when you are not trading well is to reduce your size, but still take the
trades you believe in and be consistent. You should review your trades on a
daily basis, and for some of you, the methodology you are using. Stay with the
patterns you understand and have confidence in. The best trends occur in the
early morning after the open and in the last two hours of the day. Stay away
from the middle hours unless there are unusual circumstances.
The answer to which way
is the market going today, or any day, can’t be known with certainty, but we
must be ready to trade the day’s pattern which might be Down, Up, Down; Up,
Down, Up; Or the trend days where the market gives us Up, Sideways, Up, or the
reverse for sells. This week will provide opportunity, so be diligent and
disciplined, and you will be profitable. The answer to the question, "So what
are we trading today?" My answer is any damn thing that moves and hope the
program traders accelerate it in our direction.
Have a good trading day.
Five-minute chart of
Friday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Friday’s NYSE TICKS