Bungee Jumping
Well, there are bungees and there are BUNGEES.
Today’s early action certainly reflected the latter, as it seems the whole world was
watching for some kind of snapback on the Qs after the typical retail gap-down
fleecing on the heels of two strong trend days. We certainly got it, if
even for the moment, with a three-minute cross that ran a full $0.50 before
running headfirst into 13-minute resistance. If you saw it and executed,
congratulations, as you’ve been doing your homework.
Before I go to the charts, I’d like to share two very strong biases that have
evolved over the years. These biases have hopefully come across in earlier
columns, yet they were reinforced again for me this morning. First, I can
probably count on one hand the number of times over the years that I’ve entered
in the direction of a significant gap. Add to that the premise a potential
exhaustion move after strong trend days and I can tell you the exact number: zero,
and then I’m looking hard at reversal triggers.
Second, a reversal trade
that is contrary to larger trends is just that, a trade. It’s not a belief
the a trend has reversed and we must continue to respect resistance points on
larger time periods until broken. Have we broken longer-term downtrends? No. Was it worth taking a three-minute cross
long despite the larger picture? Yes, but only
if one realizes it is a trade into resistance and that’s it until the trend
becomes clear.
One of my goals in working with traders and doing this column is as much to help
folks stay out of trouble in severe conditions as it is to generate profitable
ideas. Stay out of trouble and you’ll be around in the long run. Yet
in talking with various traders recently, I still sense there are many who are
fading into positions against the current trend with the intent of being
"early." At the risk of preaching to some, there will be plenty
of times to be "early" without leading to an "early" exit of
your capital or career. Supports work, and right now they’re few and far
between until we get at least a handful of 15-MAs (or however you define support)
beneath us.
Now I’ll get off my soapbox and let the charts wrap up today’s column.
Thursday
August 30, 2001 11:50 PM EDT
Good (and
safe) trading!
P.S. I’m pleased to announce that I’ll
be hosting a two-day
QQQ trading learning forum immediately following TM2001 at the Venetian
Hotel and Resort on October 7- 8, 2001. It seems like we’ve struck a pleasant
nerve with the Q column, and I look forward to sharing my thoughts and views in
a live forum highly conducive to learning and interaction, as well as simply
meeting many of you in person. So whether you trade the Qs or watermelon
seeds, consider extending your stay just a bit and we’ll combine some very
intensive trading discussions and some fun!
For
a more in-depth look at how Don trades the QQQs, click here.