Chaos With Symmetry

December 1, 2000
Kevin Haggerty

First
you have to thank crowd psychology, then
you must award the market makers and specialists as co-first stars in the game.
The second star of the game goes to the program traders for the acceleration of
movement that they provided in both directions. It was a great game yesterday
for daytraders and for those aggressive money managers trading around positions.
I would also be remiss if I didn’t pay a tribute to the predictable over-hype by
the TV media.Â

What looked like chaos to
99% of tradersÂ was, in fact, the exact opposite if you were armed with the
correct tools and a good trading plan. There was a natural order in yesterday’s
move and some very obvious high-probability trading opportunities. As
expected, the Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating) had a gap-down opening of -5.1% to 2473.
The
(
QQQ |
Quote |
Chart |
News |
PowerRating)s opened at 61.75, right on
the 1.5 volatility band. I have
included my volatility band table from yesterday for your records.

Volatility Bands: 11/30 Trade
Plan

Closing Prices		2603	65
% Prob.	STDV	NDX	QQQ
68	1.0	2508	62.82
80	1.28	2482	62.21
88	1.5	2461	61.75
95	2.0	2414	60.625

Note: The closing prices are
4:00 p.m. close. The Qs traded down to 62.9375 after the close due to the 4:05
p.m.
(
ALTR |
Quote |
Chart |
News |
PowerRating) deal, so you would use the 4:00 p.m. close for your calculation
of the QQQ Volatility Bands.

The Qs then quickly traded up to
62.625. Did you have an order in to buy, anticipating the gap opening?

The NDX traded down to 2456.19, before
a +3.2% rally to 2535.38. Next came a decline of -4.1% to 2431.31, right between
the 1.5 and 2 bands. In addition to that convergence, it is significant to note
that the -4.1% down leg was exactly a 1.27 extension of the +3.2% rally, so you
had a very high-probability situation. You will often see 1.27 or 1.618
extensions at significant tops or bottoms.

The Qs traded down to 61, which was
just above the 60.625 2 band. The NDX rallied to 2471, but couldn’t get above
the opening price of 2473 and went sideways as the Qs held the 60.625 2 band
until the NDX made a marginal new low of 2426.41 on the 1:45 p.m. bar. This new
intraday low set up a clearly defined RST buy pattern. The Qs bounced off the
60.375 low on a wide-range bar, closing in the top of the range at 61.75. You
should have been long at the 60.625 2 band level and you RST buyers would have
entered again above 61.375.

The NDX rallied above the open to
2486.17, which also broke the down trendline. See your five minute charts. The
Qs hit 62.625. The NDX then declined to the .786 RT level of 2440 which set up a
narrow-range 3 pattern or for those that like to say Dynamite Triangle. Look at
your five-minute charts now. This was giving you another entry chance out of
this narrow-range Dynamite Triangle pattern which puts you in the emerging 1-2-3
bottom pattern at a lower level rather than above the high of the 2 point, which
was 2486.

So far, you had a decline to the 2
band, an RST buy pattern, breaking of the down trendline, a Fib retracement, and
then a 1-2-3 bottoming pattern where you got an early entry from a narrow-range
Dynamite Triangle pattern at 2460 after the 3 point was made with a 2440
swingpoint low. If you can get entry prior to the 2 point entry which was 2486,
you take it. The NDX traded up +6%
to a 2573 intraday high from the 2426 low. The Qs hit a 64.25 intraday high.
From 3:30 p.m. the NDX dropped off and closed at what I call the equilibrium
level of the 2% bands around the 2496 .618 RT level. The index closed at
2507.Â

In summary, there was a definite order
in the chaos yesterday if you knew what to look for. I will cover all these
tools in the few remaining seminars that I plan to teach.

face=”arial, helvetica”>(December Futures)

Fair
Value

size=2>Buy

size=2>Sell

3.75

.5.00

2.65

Pattern
Setups

Have a good trading day and again, be
careful of position size, and tight stops!

Chaos With Symmetry

BUY THE FEAR, SELL THE GREED

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