Developing Your Market Rhythmn

July 21, 2004
Chris Curran

Stock index futures opened Tuesday’s session
with small upside gaps as all eyes were focused ahead to 2:30 ET when Fed Chair
Greenspan would be bringing his semi-annual dose of ad nauseam to the Senate
Banking Committee.Â After filling the gap, the ES, YM, and ER2 all found a
decent bid, mostly from shorts getting covered ahead of Greenspan’s comments.Â
After the content of his speech hit the newswires, we saw some “selling on the
news” as Greenspan really didn’t say anything new and was still trying to
persuade the world that the markets are ready for the inevitable, but
“measured,” rise in interest rates.Â The futures managed to recover going into
the equity close and got a bigger boost on news that MSFT would be paying a
special dividend, increasing its regular dividend, and buying back more stock,
which is kind of screwy considering the company gives its quarterly report in 2
days.Â Things that make you go “hmmmmm.”

The
September SP 500 futures closed Monday’s session with a gain of +13.25 points,
while the Dow futures tacked on 96 points.Â Looking at the daily chart, the ES
posted a market structure low as it broke out of its falling wedge to settle
back above its 200-day MA and just under its 50-day MA at 1116.Â On an intraday
basis, the 60-min Butterfly hit its target and then some.Â In the small caps,
the Russell E-mini (ER2) posted a market structure low off of Monday’s doji and
Fib support.Â So far, though, until we see some decent follow-through to prove
otherwise, these move are nothing more than pullbacks in the downtrend.

Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â

September
bonds (ZB) got hammered on the Greenspan news and settled on 10-day MA
support.Â The Semiconductor Index (SOX) reversed off Monday’s doji and still has
an air pocket up to the 434 area.

On
Wednesday morning, Greenspan speaks before the House Committee, but aside from
anything new coming out of it, the focus will be back on earnings and guidance
as GM and LU report before the open, followed by EBAY and QCOM (among dozens of
others) after the closing bell.

Market
Rhythm

Having a “rhythm” with the
market or a trade closes your circle from understanding the rules of the trade,
to actually having the sense of when to enter and when to exit. I’d much rather
see a trade lose little bits over time, gaining market experience along the way,
so that when they reach the plateau where the losing begins to turn to the
uptrend, they know WHY they are succeeding.Â One or two losses and you’re out
doesn’t allow you to learn the business.

The principles that I use are
not proprietary.Â I didn’t develop them, and the only alterations I’ve done is
to fit my risk tolerance.Â It may seem like I “found” something but I can
guarantee I wasn’t the first in market history to find it.Â It boils down to
watching and reacting, nothing more.Â With regards to reacting, or responding,
I’ve learned that not all setups are taken, and not all action is tradable.Â
Eventually , you get that rhythm, that “feel”, in which you know which setups
cause a response, and which ones don’t. If you’re at this point, continue to
develop it. If you’re still in the learning phase of the concepts, don’t push
yourself because you’ll get there eventually.Â Learning to trade is a process,
not an event.