Are You A Dog Chasing Cars?
Are there ever any no-brainer setups? In my opinion, there are. Not often,
but often enough to make a living off them. Successful traders who are able to
pull money consistently out of the markets have one trait that allows them to
take full advantage of the “no-brainer” setup. They have the
discipline to wait on the sidelines patiently until these setups arrive.
While I am not an intermediate-term trader, I have a lot of respect for those
guys. Those who follow the IT in an orthodox manner have to sit out for
many months during extended bear markets. There are a lack of stocks meeting
their criteria, so they just wait it out. You may not have that patience, and
that is why you’re trading on a shorter-term time frame.
But even if we trade intraday or on a swing-trading basis, there will be
times at which we are offered a series of tempting, but sub-optimal setups. It
is hard to stay out of the action if the market or the individual stocks you
are watching are moving at high velocity. There is that uncomfortable feeling
of “the train leaving the station.”
A good trader will let the train leave the station if he is unsure of the
train’s destination. An undisciplined trader will chase a train just because
it’s moving fast…like a dog chases a car.
Today, we had what to me looked like a no-brainer setup.
I’ll use the Cash S&Ps as my illustration. But you can pretty much
identify the same patterns in a lot of indices and individual stocks. Let’s
look at the setup.Â
- The TradingMarkets.com Market Bias page gave us a total of five signals
with a downside bias.
- The S&P 500 and other major indices, hit major (and pretty obvious
resistance levels)
- Ever read Carolyn Boroden’s column? She had major Fibonacci Time and
Price clusters up the proverbial wazoo hitting over the past couple of
days.
- You had major bellwethers like GE and Microsoft exhibiting negative
relative strength in the recent rally. - The index ran into, but not through, its
50-day moving average on 08/02.
Every time I write something like this, people always
e-mail me and tell me, “Hey, Eddie, how come you didn’t tell us this
yesterday?” Well, in this case I
had already written the column yesterday when I had put the pieces together.
My volatility data didn’t come in until late in the afternoon. In spite of
this, opportunities were plentiful this morning.
Easy to put into practice? Of course not. But definitely doable.
Have a nice weekend,