 |
| Click To Enlarge |
|
|
Market Commentary: October 6, 2005: Today was another very profitable trading day for those willing to wait for the markets to sort themselves out, and then find a high-probability trade entry set up in the likely direction. With so much late-day action in the past two days, I think many traders expected today's action to earlier in the day--almost because that would be "different." But the market is what it is...it does what it wants to do, not what we want it to do. The concern I had that I shared with the traders at Spike was that with the unemployment number out tomorrow morning [Friday], the market might simply coil all day long after moving so far, so fast in two days. As I told them yesterday in the pre-opening brief, the key would be to patiently wait for the market to show signs of a trend and then not enter a trade until you recognized a trade set up that you are capable of trading. Successful trading is much like baseball, where the successful hitters are the ones that wait for a pitch they can recognize AND hit before swinging. Too many traders think they have to swing early and often, no matter what's going on, because they MIGHT hit something that adds up to a winner.
Much like yesterday, I didn't recognize a trade entry I liked until nearly mid-day. Although these charts are not posted here today, the longer-term daily S&P charts that I have been trading from have been calling for a test of 1190. As mid-day approached with the market unable to mount any serious attempt to rally back to test any of the major overhead resistance, it seemed likely that the downside would again be the path of least resistance, and so I watched carefully for an area and a trade set up to attempt a short position. |
 |
| Click To Enlarge |
|
|
Finally price zoomed below the pink down sloping Median Line--and in point of fact, I had to wait for it to zoom a second time, because the stop on the first potential trade entry set up was too expensive for my taste--and so on the second zoom below the pink Median Line, I found a trade set up that I liked and that carried a risk reward ration I liked, as well as an affordable initial stop loss. I sold E*Mini Russells at 648.60, which was the re-test of the zoomed Median Line and my initial stop was 7 ticks above the just made 650.50 mini swing high, at 651.20. My profit target in was tied as much to the daily charts I keep as to the blue First Warning Line I have marked on this chart. The 1190 target that I had in the S&P dailies correlated to a similar area in the Russells at roughly the 636 level, and as you can see on this second chart, that's where price headed, making it easily before a rally of any significance. I put my profit target 7 ticks above the blue First Warning Line, at 635.90.
This was a nice clean trade that yielded 12.7 points in the E*Mini Russell, which is a very nice $1270 per contract before brokerage. Price has now gotten to a level on the daily charts where I am more than a little leery of the short side. I have had this area on the daily charts marked for several weeks and I am quite happy to have found places to get short three days in a row that allowed me to catch the majority of the move down, while holding no risk overnight. Again, the key is to let the market first settle down and show you its direction and then to look for a trade set up you can trade [not one someone else can trade]. And the trade set up has to have a good risk reward ratio and a stop loss you can afford. In the Russells, I don't like initial stop loss orders greater than 3 Russell handles, no matter what I think the profit potential
I wish you all good trading!
Tim Morge |
|