Remember This Cardinal Rule

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.

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! 
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.