Today is Wednesday June 24th and markets found a footing to mount a nice rally on the open.
Today’s market action was a nice reaction to a pattern that was setting itself up all day yesterday. I wanted to show it but I decided to write something else instead. I knew something was brewing there. We had a real nice controlled move back up to the middle of the range, moving right to a 62% retracement off of the last pivot high before the break.
For those interested to look at this market action a little closer, I have below a 10 minute bar chart of the S&P with some market comments and break points identified on it. You can see where the pressure points were and draw some comparison to how price action flows for the last few days. You need to know what it looks like, so that in the future when you see similar setups and patterns you can with some degree of accuracy draw some conclusions.
Do note that the price action over the last few days has with it some gap days in the cash market, meaning that the futures had moved out above and below some of these support and resistance areas before the general public could take advantage of the breaks. Trading in the premarket before the open could have placed you in the break out areas as shown Just thought I would point that out. The street is not letting the public take advantage of the full move by taking it up and down before them, a sort of front running. Again, just an observation.
The market is now forming a larger “Triangle” formation, with resistance above and support below. Again you can see this in the chart below. I was expecting the move back up to the middle of the range, big time, but where from here as I said yesterday. We seem to have found support right where I drew that parallel on Monday’s daily chart. There is no other logical reason for the market to stop where it did. It is not close to any support from the left side of the daily charts, but has stopped right in its tracks in a not so obvious place.
Why? Well, I believe that is where the unseen support comes in. Not so easy to see with the naked eye, but another reason why you should learn how to plot and chart parallels. It’s not a science as I have said before, but it can be a useful tool if you know how to use it.
Maybe tomorrow I will show how the downside move over the last 10 trading days was confined to a parallel downside channel as well. This gave you the downside potential target and the upside resistance area that we hit today. If you are trading for large targets this information can give you the patience and staying power to wait out the move until the objectives have been met, as long as the price action supports it Price always rules.
I will continue where I left off yesterday in pointing out common and critical trading struggles with the would be trader.
Point number two was, “Reaching for trades, trying to make up previous losses”.
*** There is a right way to go about making up lost ground and I will discuss that after I point out the problem. When you find yourself down a few trades and in negative territory, most traders get taken over by a swell of emotions that usually makes things worse for themselves. You get overwhelmed by your loss and how the market just seems to know where you put your stop and it goes to it like a magnet, another loss.
As I said yesterday, you can not allow yourself to bleed out. Take each trade on its own merit and shake off the losses. Be mindful not to lose your nerve and confidence. If you do, it is only going to get worse. You cannot make rational trading decisions from this negative posture. If you have 3 losses in a row and it could even be two in a row, you are now in the “PENALTY BOX” for being bad. It is obvious that you are not in tune with the price action and need to walk away and take a break.
Look at each trade and see if it meets the qualifications you have previously set up for a buy and or sell decision. If it has not, DON’T TAKE THE TRADE. Let me tell you, not taking a trade is just as important as taking one and is in fact taking a trading position, a no trade position. You will be amazed what a little time will do in offering a whole new set of price action reads for you to consider. But if you rush in too quickly to try and prematurely recapture lost gains, you are only setting yourself up. “Just Say No”. Moments later, you will see what it is you were looking for, the perfect trade setup.
One additional solution is to use what I had pointed out yesterday, by doing something physical, to get your blood pumping and oxygen flowing to your brain. I suggested doing 10 push-ups or more when you find yourself in any difficult position. You could do something else, like push a little iron, whatever you think you can do to break the destructive pattern you find yourself in. Some traders get paralyzed and cannot leave the screen as they continue to frustrate themselves to no end. Many destroy their account so that the pain will somehow stop. Don’t let that be you.
One last thing on this and it will be a big help in taking the pressure off. I believe that all traders have bad days and we know that is the truth, but you need to draw a line in the sand well ahead of time as to where is your cut off point for the day. If you don’t do this, you and your trading account are going to have that real bad day that you do not want to think about. Well, you have nothing to stop you, because you have not set up in your mind where you are going to stop trading for the day.
I have what I call double my daily goal as my daily loss limit. It’s enough room to breath but not too bad to make up the next day if in fact you get there. Minimum daily goal is 2 net points a day, but often is 4, so your daily loss limit is 4 S&P points for the day. If you find yourself there, STOP.
I will pick it up tomorrow, out of time and space for today. Trade on!
http://www.screencast.com/t/HQWZvmnef6O 10 minute chart of S&P with notes and comments
Related posts:
- S&P 500 bounces off double bottom & Trading Lesson
- Trading Lesson: Part Three
- Trading Lesson: Part Four
- Trading Lesson: Part One
- Valuable Trading Lesson
Tags: bar chart, cash market, daily loss limit, pivot high, Price Action, Trading Lesson
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