Remember This Cardinal Rule
Before we address today’s
market, I’d like to discuss yesterday afternoon’s action
which provided one of the more high-probability
signals and lessons we’ve seen in recent days, while resulting in one of those
highly efficient “time in market” bonanzas for those who choose to have the
capital at risk for as short a period as possible — the goal of many traders.
Following up on
yesterday’s midday column, I mentioned the strong potential for a hard
bungee-snap given the market condition at midday, along with the rare need to
keep an eye on the intraday
(
$VIX.X |
Quote |
Chart |
News |
PowerRating) in addition to our standard 3- and
13-minute price turn signals. Fast forward to 3:00 p.m. ET and let’s review our
standard price (white) and VIX.X (gray) charts and indicators as they were
displayed at the time. I’ve highlighted and annotated relevant attributes which
I’ll define below the charts.
Let’s freeze it here
for the moment as I purposely want to focus on the charts at the time, rather
than bogus after-the-fact analysis. Yet I’ll be frank and candid: Assuming one
is trading intraday — or heck if you’re even swing trading shorts — if you see
any signal on the above composite at
that moment to be short using our methods, then I suggest you re-review the
E-Mini video. At this point, your charts should be screaming at you
(and in the first week of March,
I’ll be screaming at many of you) to
consider covering shorts and reversing into longs, and many have their systems
set to do just that via bells, whistles, horns, or similar virtual 2x4s.
Let’s add it up: (1) 60-Minute stochastics under the monitor, (2) positive
13-Minute price/stochastics divergence, (3) a break in the VIX.X 3- and
13–minute uptrends, and (4) ample profit potential on any bungee reversal
between the 13-minute and hourly trends, and (5) the first combined 3- and
13-minute price trigger in days. Past students know items one through four
simply set the stage as we await a trigger that provides us with both a trade
and stop premise, which the market finally handed us nicely in item
five. Call it the perfect storm in reverse.
A quick digression at this
point. One of the reasons I’m spending so much time on this today is not
because of any great forecasting on my part (you hopefully know my views by now
on the huge “I told you so” ego problem in this industry and any long
reversal entry could have resulted in the lesser probability stop as with
any trade), but rather to enlighten and try to keep folks out of trouble in the
future. When my trading hat is off, my goal as a columnist and educator
continues to be to help develop self-sufficient traders. Egos and
opinions are best left to Hollywood and late night talk shows.
The rest as they say, is history as ES exploded 12 points off the trigger.
Now I received several calls and e-mails last night from many folks who managed
the sequence tremendously well (nicely done!), as well as from some who were
wondering what the he## hit them, and to make matters worse, some of whom
shorted into the subsequent rocket. To the latter group who likely often find
themselves fading the market, I offer one suggestion that has changed the
trading life of several folks: You may need to incorporate a cardinal rule NEVER
to trade against the one-minute trend on a surge. While some can trade
effectively without such a restriction and there are times where it can be
effective to do so, it is often an absolute requirement for those improperly
trading on their “feel” for price vs. objective technical analysis.
For these folks have two choices: Either continue to replay the following
sequence:
Morning: “Buying ES 813 as this is ridiculous and we have to bounce.
Damn, down to 811 … we can’t go any lower so let me add another lot. Back to 813
… whew, I knew it, upping the ante, here we go. Geez Louise … 810 (closing
eyes) … Is there news?? 807??? Uncle, I’m out.” Fast forward to the
afternoon: “Shorting ES 813 as things are out of hand to the upside and
we’re 7 points off the bottom in a bear market. Adding more at 816 … it can’t
run any more. 819?? But what about the Iraq thing?? 821????? This is Nuts!Â
Out in disgust at 821.25 while venting something like “Those jerks!” or “No one
can make money at this.”
Or stop the sequence in its tracks, period. For some folks, this is a
critical make or break decision in the area of discipline. I know many are
caught in this loop … the charts tell us that and there are of course two sides
to every transaction. I’ve been there. We’ve all been there at one time
or another and anyone who tells you otherwise likely has some swampland to
sell. It’s also precisely why I encourage triggers that can also serve as stop
premises.
With respect to today’s action, I suppose I’ve taken up enough space for one
day, and the market’s currently in a lull as traders await news from the U.N.
Lastly, for those interested in participating in the
upcoming “virtual pit” experience, I wanted to remind folks that I’ll be
providing a free one-on-one 90-minute consultation as a follow-up to the
seminar. A few spots remain, and I’m very much looking forward to sharing
thoughts, perspectives, trades, live desktop screens, and a few laughs and some
fun throughout the week. Thus far, we’ve got seminar representation from both
coasts of North America and Europe without anyone incurring the hassles of
travel. It’s nice to live in an age of technology!
ES (S&P)Â Â Â Â Â
Friday February 14, 2003 10:30 AM ET       NQ
(Nasdaq)
Moving Avg Legend:
5MA
15MA 60-Min 15MA
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Good Trading and
Have a Great Weekend!
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