Why You Should Use Both Types Of Bands
Another day at the office, as
the SPX
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$SPX.X |
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PowerRating) went up, down, sideways, then a big program down from
3:15 p.m. ET to the close of 800.73, or -0.8% on the day. The Dow
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$INDU |
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PowerRating)
lost 0.6% and the
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PowerRating)s were -0.8%. After the early up, there was an 11.5
point knife down from 10:00 a.m. to the 11:00 a.m. bar which set up the RST long
entry.
If you work with
volatility bands every day, you realize that the 11.5 points was almost a 1.0
volatility band move from 814.24 to the 802.74 low. The initial 1.0 volatility
band yesterday based on the previous close of 807.48 was 794.34, or 13.1 points.
Do the calculation from 814.24 using the same .311 AIV, which is the average
implied volatility you get on the site every day, and you get an 801 level. If
you looked at the 20-day 30-minute chart with the standard deviation bands, you
saw that the 802.74 low was just about right on the 2.0 standard deviation band
at the time of the RST buy entry. This trade ran only to 810.59 before reversing
to new lows into the close. FYI: The RST pattern had yesterday’s 5 and 4 points,
while the 3, 2 and 1 points were on the previous day.
I would hope some of you
past seminar attendees saw the sell RST pattern with the 5 point being the 10:05
a.m. bar. Because of the wide-range bar, your entry was below the midpoint of
that bar, assuming you thought that the market dynamics were turning. The other
points were on the previous day. There are many reversals, or accelerations,
around that 10:00 a.m. time slot, so it is always a strong alert zone.
Overall NYSE volume
expanded to 1.4 billion, a volume ratio of 29, and breadth -508. The
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were green all day, but ended the day just positive by a few ticks.
As you should know,
successful trading requires that you plan the trade in advance, and that is how
you avoid anxiety and it better enables you to handle any pressure you might put
on yourself, which comes mostly from emotional or spontaneous trading. If you
have confidence in your methodology and have defined setups that you run your
trading business with, then you just have to trade your plan.
Relating that to
yesterday’s trade from the 11:00 a.m. zone low, you should have been
anticipating a possible 1,2,3 bottom, because the SPX had declined 13 bars to
the 11:05 inside signal bar, which was almost a 1.0 volatility band move from
814.24. For you RST traders, once the SPX traded below Monday’s 3:45 p.m. 806.57
low, that there had to be a 5 point setting up soon, so you were looking for it.
Then if you incorporated the standard deviation bands, you had more confirmation
it was a high-probability reversal zone. It never seems right at the time, but
if you are waiting for it, you will take the trade with much less anxiety
because it is a high risk/reward trade.
We remain captives of the
news by the minute, so daytraders should be looking to take quick profits on
half the position and moving to breakeven much sooner than you normally do.
Have a good trading day.
Five-minute chart of
Tuesday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Tuesday’s NYSE TICKS