Successful traders follow these 2 cycles
Jea
Yu has been involved with the equities markets for over 10-years. He specializes
with intraday trading in the U.S. equities and futures markets. To receive a
free 7 day trial to Jea Yu’s Underground Trading Pit,
click here or call 888.484.8220, ext. 1.
Regular readers are aware that there are two
important market cycles that will determine the rate of their success. There are
peak market periods and valley market periods. The peak periods are fertile
trading markets that give plenty of follow through. Valley periods are full of
head fakes and wiggles without much sustained follow through. Peak periods are
right before and during earnings season where the news is plentiful and volume
is high. Valley periods usually come in at the end of earnings seasons through
warnings.
The problem with most traders is they don’t adapt when peak markets turn into
valley markets. Traders must switch from offense to defense. Peak markets are
when high percentile setups trigger like perfect storms (three or more mini pup
time frames simultaneously) and heavy shares size can be used. Valley periods
must be adapted to by trading less size and less trades in general.
Often times traders will keep pushing trades and upping the size in frustration
in valley periods. This is the time where most traders can blow out. After
enough losses, they assume the methods they employ are worthless and start
another quest for the holy grail of methods. Unbeknownst to the trader, all he
simply had to do was accept a valley period and wait it out. As traders, one
cannot control the markets. However, one can control their actions and that’s
critical in valley periods.
For valley periods, we trade mostly the first and last hour and sit through dead
zone. We shoot for scalps with tight filters. We trim down the size of the
shares. Most importantly, limit the number of trades.
Here’s an example of a morning trade on
(
RIMM |
Quote |
Chart |
News |
PowerRating). RIMM was taken short at
82.25 at 9:36am. In this trade, RIMM formed a 8 minute mini inverse pup which
also triggered the 3 min mini inverse pup. The 1 min stochastics slipped
triggering the short. RIMM leaned down through the 82.15 pivot to panic through
82 to tag and coil off the 81.90 coil support (which we always anticipate). Our
traders covered into the sellers 81.95, out + .40. This was a fast scalp off the
open but with two mini inverse pup times frames, set up for a nice scalp. In a
valley market, we got + .40. In a peak market we likely could have gotten the
full lean to the 81.50 lower Bollinger Bands for a + .85 move. That’s the
difference.
Markets are now in a valley period. Keep your size and activity low. Survive the
valley period and THRIVE in the peak period. Good trading all!
Jea Yu