Nice Combination Today

Major markets remain in a
sustained downtrend

on most timeframes this morning, with
multiple bearish inverse cups on ES providing the best opportunities of the
early trade. Specifically, the 13-minute and hourly downtrend supports provided
a strong tailwind for early shorts, which combined with a third inverse cup on
the three-minute that completed at 9:45am ET and provided both a third trade and
stop premise, as well as a trigger for the larger periods.

As I’ve noted before, the power of the psychology behind cup formations, when
combined with our 15MA premises, results in strong reward/risk ratios. In
today’s case, many of those who used yesterday’s late morning and UN-induced
move to position for longer-term longs were caught in the reversal and added
fuel to today’s downdraft. 

As I mentioned in

yesterday’s column
, longer-term longs may begin to interest me only if we
get a further downdraft to provide bungee coil power, or a turn up on the hourly
INCLUDING a successful test. The latter didn’t come close to occurring in the
afternoon as the market was in a virtual freefall on the first test of hourly
support, and the support angle itself was horrendous. And while I don’t usually
type words in CAPS, I felt it important yesterday to stress “INCLUDING,” which
remains in place at this end.

I personally thought yesterday afternoon’s trade was a challenge, which I was
discussing live with one of my mentor students. I felt it was a challenge
because of the poor perceived reward/risk ratios during the emotional
downdraft. And unless I can combine low risk with high probability, I won’t take
a trade. While there were a few triggers to get short, including the mid-day
break of the three-minute which never looked back, pullbacks once the move began
were shallow at best (at one point in the freefall, ES was more than 12 points
away from its 13-minute 15MA downtrend support) and thus I spent much of the
latter part of the day scalping and planning for a potentially better scenario
this morning if we could get a bit closer to the 13-minute 15MA, given the
multiple bearish cups at our back.

This morning’s three-minute trigger was a bonus, especially given yesterday’s
falling knife. And while I might have done extremely well had I chased
yesterday’s down move on the short side, doing so would have reinforced a
terrible trading habit (been there, done that) that will work the minority of
the time, which is the exact opposite of what we should strive for in this
business. You don’t always get what you ask for in this business, so today’s
combination was nice to see.

Lastly, plans are set for what I expect will be an exciting and productive first
week in March as 20 of us will spend a week in a

virtual trading pit
via the Internet. We’ve put together a comprehensive
agenda that combines live trading, screen prints, lunchtime seminars, and
evening roundtables and I’m looking forward to participating.

ES (S&P)         
Thursday February 6,  2003  11:30 AM ET            
NQ
(Nasdaq)


Moving Avg Legend:
5MA
15MA
60-Min 15MA

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Good Trading!


Don Miller