Why These Levels Were Key
The fade off the opening did work, but as
suspected, it was quickly sold into, but not before you could have pocketed some
$$ for your efforts. The M.O. for the rest of the day was the same, trade
lightly, if at all, and manage longer-term positions.
The longer-term positions (defined as trades that last a few hours) are
profitable in a market like this. I reduce my share size dramatically since the
noise in between each bar is high, even though there is a trending nature
intraday. The smaller share size makes me less jumpy to bail on a trade, and as
a result, share in the rewards from the chart work. Too many times, especially
in a market that has been quiet, we feel pressured to make it happen on the one
trade. Sure, your analysis was correct, but you put yourself out of the
“comfort” zone by trading the equivalent size of your
HVT trades. I do 1/4 of the share size for these longer-term
trades, it made all the difference in the world for me.
Also, never underestimate the power of Support and Resistance levels (FNs)
when they coincide with an already valid HVT
setup. The chart below of IBM illustrates two trades which are great setups to
begin with, but when you add in an FN, it makes the trade more robust.
In yesterday’s column, I also highlighted 788 as being
a critical level for the S&Ps. It was a Fib extension. Once the price action
began to consolidate in that area, a 1,2,3 setup was touched off and led to the
nice rally into the close. While I did not take the 1,2,3, the 788 level was
foremost in my mind and allowed me to take advantage of
HVT trades in
C and especially
IBM, as noted
above. I had mentioned this in a column a couple weeks back, despite the trading
action being spotty, the market is trading very technically. Know your levels,
it will greatly enhance your effectiveness.
Yesterday’s strong close created a nice reversal bar on
the daily chart of the S&Ps, so it is reasonable to expect some follow through
to the upside. However, unlike other reversal days, the sentiment indicators do
not indicate that it will be meaningful follow-through:
- NYSE Breadth: 2:1 negative.
- VIX: Nowhere close to the levels seen in October
and July of 2002 - 8x as many new 52 week lows on the NYSE versus 52
week highs.
My point is simple, sure there may be a bullish tone to
the market at present, continue to trade it the way we always do on the opening
and throughout the day. However, if you are looking at yesterday’s close as a
reason to jump in for a ride higher, you may be wise to wait. Just my 2 cents
worth.
| Support/Resistance Numbers for S&P and Nasdaq Futures |
||||||||||||||||||||||
|
Don’t forget, my new book, “How
I’ve Achieved Triple-Digit Returns Daytrading…4 Hours A Day” is now
available. Order today and you will receive a 10% discount.
As always, feel free to send me your comments and
questions.
PS: Buy my book, and get a
FREE 2 Week Trial to my Daytrading Service.
Click here for more details.