Today is Tuesday, May 26th and the markets reacted off that now famous 880 support level once again.
Very interesting day today and I would have to say that I am not surprised. I have been leaving the door open for moves in either direction as long as the 880 S&P support is holding. What is happening now is evidence to base future direction on.
With today’s action, we are putting in what I call a “W” pattern. I have never heard or seen anyone use that term and rarely even reference the pattern. I don’t know why, actually don’t really care, because I seem to have very good success from reading these patterns in the smaller micro moves that happen all day long.
This pattern happens to be very big, in looking at it from a 60 minute bar chart. The bigger the pattern the bigger the move, is usually how it works. I am keeping an open mind as to overall direction. We are close to the top of the “W” pattern, with maybe 10 points of potential upside. If the market gets over 925-930, that would be a significant development.
I don’t think that is going to happen right now. We should be contained to the upside around 920. Once hit, a reactionary move back down would be a normal price move, but there is a good possibility that it will be contained. What I mean is no big sell offs. There is a parallel channel based from the recent tops, bringing support back in around 847-850 or so. I don’t know if that will hold but it will probably bounce off that number. We’ll have to look at price action at that time if, in fact, that plays out.
My last post I had talked about how the open can set the tone for the rest of the day. Today, we had a sell off early, setting the stage for a break out after the hook was set. An early morning spike down to catch up with the futures and a great looking upside break with a lot of pressure built up over the holiday, good for over 20 points.
I did not get a chance to see that set up today. I started a little late, but that is one move I would like to think I would have been in. I did not enter on the way up, my data stream has been acting a little slow. I tried to enter a couple of times as a continuation pattern was developing, but I could not get the execution done. I am running SKYPE conference line and a screen sharing program and TRADESTATION with several charts up on two screens. When the action slowed down, it seemed to be a bit better, but I missed some big moves there.
After all of that, I know that when you get a sustained move with velocity to it, at the top, it usually moves into the CHOP ZONE, that is what I call it. I love the chop, it usually works well for me when I switch to my scalping mode, 1/2 to 1 point trades with targets. The issue was, I was in what I call T-2 trade setups. That is when you have split targets, the first comes off early, the second comes off later at higher levels.
If you are in the chop zone, you will often only get one target and not the other. This helps to offset your losses, but it does not take your equity up very fast if at all. Needless to say, I switched to my T-1 trades (Scalp) and picked up some nice little moves here and there that added up quickly. I have included a small screen shot of some of these trades below.
There are no indicators attached to them, but I do use them, just not showing you here. I do have one tool up, that helps spot directional changes to the price action. I can trade without any indicators and at times I do, just so that I do not depend on them in the future. Indicators are usually lagging behind price, that is why you want to be able to train your eyes to spot the moves independent of anything else. You will become a better trader if you start that process. In the mean time you can use some of these tools to help you see what is present in the chart that you are not able to see on your own, at least for now.
The trades that I am showing you below, are all timed to some of my custom indicators. Some are pretty standard that have adjustments made to them and others are used in conjunction with the first. They all work together to give you market reads that you may not be able to see alone. But remember what I said about these tools, its very important that any person who wants to excel as a professional day trader, learn how price action works in relation to all the other factors.
For anyone interested in trading, I have always said that if you are well rounded and can trade differently for different conditions, you will have an advantage. I do like to take trades that I can get 5 points plus in, but it usually starts out as a scalp. My stops are small, (at times I start out at 4 ticks, but move it to 3 – 2) .
Have you ever asked yourself what you are trading for? Many people will say, “for the money”. Another question: Are you willing to leave your EGO aside to reach this goal? Many people will not. If they are being brutally honest, they want to be right and have this conquering feeling of, “I outsmarted the market”.
If you are trading for income, that puts a different perspective on the whole thing. A modest daily goal of 2-4 points per day. Reaching for too much too fast, just because you think you can, will leave you with nothing. It is hard to take a 1 point profit on a trade and watch the thing go to the moon without you, but if you are trading for income, does it really matter? You only need one more good trade for a point and a little topper of say a 1/2 point to make a daily wage. Trade 5 contracts and you have $500 for the day. That is $ 130,000 per year at only two points per day net. If it’s 3 points that puts you at $ 200,000 a year. I would say that 2-3 percent of traders make that kind of money. How’s that for perspective?
By learning how to scalp with very high percentage fills 80% or so, you have the ability to pick that up in less than an hour a day. You can always spot special set-ups that can give you the big moves on occasion. That is just the way I see it, how about you!
http://www.screencast.com/t/0nAW1ajnZ Some of today’s trades, still shot
http://www.screencast.com/t/drQHtn1lSG Today’s equity chart
Related posts:
- Price Action Trading Defined
- Trading Indicators – Part one
- Price Action Rules When Trading the Markets
- Day Trading Indicators Reflect Price
Tags: 60 minute bar chart, Price Action, split targets, trade setups, trading for income, trading indicators, two points per day
Please log into the site.