When To Trade…And When Not To
If yesterday’s tight range midday had you
frustrated and searching for something to do, you may be looking for something
that was not there to begin with. I frequently get questions asking me how I
know when to trade and when not to. While there is no simple checklist to lead
you to a conclusion, a couple of simple observations will allow you to step
aside when the risk/reward ratio is not in your favor. Naturally, this short
list will not apply to all types of trading. It is meant as a guidepost for HVT.
Dave,
From 11:00 AM ET, NDM2 traded in a rather tight, confusing range.Â
Yes, one should perhaps trade only during the first hour or so each day as you
suggest, but I think it important for your readers to know how to handle what
we saw today after 11:00 as well. Why? Because there
are periods when the trade-only-during-the-first-hour-or-so approach isn’t
nearly as effective as it is right now. Also, some readers might
simply want to trade throughout the day, but need to have an objective way
to determine when to stand aside.Â
Throughout the day (after 11:00), there were
one-minute trends that would
seemingly be tradable the way you suggest, but would end up quickly aborting. With hindsight, one can look at today and see that the range was perhaps too
tight, etc. However, when in the middle of the trading as it unfolds, it
is often very difficult to know when actually not to trade.
I think it would be helpful if you could provide some pretty objective
rules/guidelines that one can use to automatically stop (or re-initiate)
trading.
I found this to be an exceedingly frustrating day after the initial 1 1/2
hour down move.
Help!
Thanks very much.
For the most part, I rarely trade past 8:30 AM PST. There are only a handful
of days where I trade bell to bell. If I do take trades after this time,
it is only for a longer-term position trade which is not necessarily dependent
on volatility. I have done this for years now. In fact, many of the
traders in my office leave around 8:30 and don’t come back until 11:00 AM PST.Â
If any of you know traders on the floor of the NYSE or CME, you will know that
most of them leave as well. As a result, you have very few
“players” in order to make anything happen. If you have
self-control and are not impulsive, hang around, you may come across some
trades occasionally. However, you are better off focusing your attention on
other matters and coming back fresh in the afternoon.
A more concrete rule is simply the range on the S&P futures. What
I mean by this is the following:
Do the pullbacks and rallies on a one-minute chart move at least 3 points
before moving sideways or retracing? If not, don’t bother. The chances
of you successfully navigating that type of move is slim. You need large
players to get things moving, not a few traders.
The chart below depicts the early morning range in the S&Ps yesterday.
For the most part, it is a downtrend as defined by the moving
average.
Usually when something appears in print, it means it has run its course. I
hope that this will be the exception. Gold stocks continue to charge
higher. In fact, they even offer a handful of setups each day on a 5-
and 15-minute bar. Unfortunately, on the daily charts they appear to be
extended. Like Dave Landry says, however, “overbought can become
more overbought.” I am hoping for a pullback to establish
positions again. The run-up in the averages around May 13 stopped me
out.
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| 1125 (confluence & key resistance) |
1320 |
| 1111-13 (confluence) | 1298 |
| 1108 | 1289 |
| 1096 (confluence) | 1275 |
| 1087-89 (key range from yesterday) |
1256 (key level) |
| 1074-75 (critical support) | 1224 |
| 1069 | 1206 |
| 1053 | 1176-77Â |
| 1043-45 |
As always, feel free to send me your comments and
questions. See you in TradersWire.