Odds Are That You’ll Be Very Successful If You Do This
The volatility was one way and down yesterday for the major indices and sectors.
After the up opening for the
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PowerRating) at 93.28, it was straight down
to the intraday low of 91.91. The 1.618 Fib extension of the last leg up on
Tuesday was 91.69. After a defined pattern entry, the best the SPY could do was
a three-hour rally to just 92.57 and closed at 92.40. Monday’s reversal-bar low
was 92.44. The
(
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the
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Programs were very active
and the news hype got a bit heavy, but you shouldn’t be surprised at the
volatility as it was expected this week. NYSE volume was about the same as the
previous day, at 1.38 billion. The volume ratio dropped to 27 and breadth was
-746. Much of the down volume occurred in the last hour with multiple sell
programs, as the TRIN went from 1.39 to 1.92.
One thing I want to
remind you of is that trading is nothing more than a game of edges in the
market. For you to win at the game, you must develop or use a strategy or system
which gives you an edge in the market. It should be a method of trading that
gives you a positive mathematical expectation, whether it be from a potential
key reversal zone or a continuation in the direction of the trend. Once your
method determines there is an edge, you must then define a specific set of rules
for both entry and exit, which you will adhere to at all times.
All of the potential
variables will be known in advance, along with your trading plan of action. You
must accept the reality that it is probabilities, not absolutes. Technical
analysis cannot predict what will happen in the future. Most of you now
understand that good fundamentals can mean absolutely nothing if the perception
of the Generals change. The new fair-disclosure rules have created more trouble
than they were meant to solve — and by that I mean more volatility.
Once you get on board
with all of this, you will realize that you do not need to know what will happen
next in order to trade the market. You will soon begin thinking about
probability and look at your trading as a year of trades instead of just
isolated, individual trades. That doesn’t mean you shouldn’t review your trades,
but your success is measured over multiple trades, and if you stay with
high-probability situations rather than emotional trading, the odds are that you
will be very successful.
Yesterday’s
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reversal bar closed in the bottom 25% of the range and below the previous two
days’ lows and previous four closes. This establishes Monday’s 93.86 high as a
significant swing point high. That means it’s a high with at least three lower
highs on each side of it. The
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also had wide-range-bar reversal bars yesterday, with closes in the bottom of
the range.
As I do this at 6:30 a.m.
ET, the futures are flat in front of some more economic reports which prove to
be just one big hype, so wait for the reactions — then trade it.
Have a good trading day.
Five-minute chart of
Wednesday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Wednesday’s NYSE TICKS