You’re Dead In The Water If You Do This
Traders are not a fussy
bunch, as long as the market moves, we are not real fussy about what
moves it or in what direction. Naturally, our fussiness of late it due to no
movement, relatively speaking. Will the earnings announcements of
Intel (INTC) and
Motorola (MOT) throw some life into the market? Perhaps, we will
have the answer this morning. In the meantime, I take what I can get. Below
are a couple of trades from yesterday, both trades are Fade the Gap set-ups, one
worked, one did not. As is always the case in a quick type “scalp” trade, price
momentum, or lack thereof is what dictates whether or not you stay in the
trade. If you start rationalizing the trade, especially a Fade the Gap trade
where you are clearly bucking the trend, you are dead in the water.
The FNM trade played out perfectly. First of
all, remember, you simply do not want to sell it short right out of the gate,
let the stochastics begin to to turn over and wait for the price action to tip
you off. Big offers, downticks are the usual signs. On the way out, it is the
opposite, price action approaching lower Bollinger Band, bids not getting taken
out, spooze getting firm etc.
EMC on the other hand, did not play out.
However, if you purely traded it technically, you would likely have stayed in a
trade that never worked. You see, oversold, as indicated by the stochastics can
become more oversold, or simply stay in oversold territory. Remember the basic
guidelines for a Fade the Gap trade:
1. Opens well outside Bollinger Band
2. Stronger/weaker than overall market. Better
yet, trading opposite market.
3. Price action must confirm trade
4. After being filled, you should see
confirmation pretty quick. If not, re-evaluate and cut trade
Number 4 was what saved me from staying in a lame
trade. Once I got filled at 13.22, there were a few more up-ticks and some big
bids showed up. But there was no quick burst up. Once some big offers showed
up and a few good sized trades (20,000-30,000 shares) went off on the bid, I
knew it was over. I sold out at 13.15, a .07 loss. However, my .28 cent winner
in FNM more than offset this good set-up
that simply never played out.
A couple of my ideas on some FX pairs on Tuesday
are not playing out so well, although they are getting better. Let’s
keep in mind, these trades were never designed to be evaluated after only one
day. However, the ferocity of the upward price spike was certainly unsettling.
Secondly, the main reason for the draw-down on the trades, thus far, is
intervention by the Bank of Japan (BOJ).
These efforts usually yield little over a period of several days. So, the
trades, in my opinion are still valid. I have a generous stop loss and some
solid technicals at my back, no need to panic.
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As always, feel free to send me your comments and
questions.