Today is Friday June 27th and we got that day like I suspected we would, consolidation.

Yesterday’s blog pointed out the fact that after a day like we had the previously, we often get a consolidation day. The downtrend has been confined to a new parallel channel which broke out yesterday, now we have been making a move back up to the middle of the range. A late rally brought us very close to a 50% retracement, but no staying power and it fell back.

One very interesting observation I saw today was that the S&P was making one move ahead of the Dow. After the S&P made a move, the Dow would come up behind it and duplicate the move the S&P just put in. The market since yesterday midday has been just moving sideways consolidating the earlier gains. It has formed a new parallel channel of which the S&P broke out of first late in the session, while the Dow just moved up to the top of the channel, but no break out like the S&P. From there it was one move behind.

When you see things like that it can help you get a glimpse into what is coming next. Next week is going to tell us a lot as far as which way the continued trend is likely to go. The support came in exactly where I thought it would on a parallel channel support from the dailies and has moved up 32 S&P points since then during the last 4 days as I originally called.

What to look for this week. It would appear the the move back to the middle is not yet complete, so I would first look for some follow through to the upside of 5 to 10 S&P points on the cash market. Once that is completed, that is where you are going to have to keep your eyes open. If the market stalls, what we have in place is a real nice pivot point for a continued move down. If that pivot point gets broken to the downside, you are going to see a lot more selling come in and lower prices.

On the other hand, if the market acts strong and can move past its mid level retracement point and push up close to the old highs, it will start to challenge and possibly break out over it. That is what we don’t know. We still have what looks like a “Head & Shoulders” formation brewing, but that can all be washed away by renewed strength back to top of the range.

The market sentiment numbers are not giving any real clues as they are currently in the neutral range. We have to remain open minded as far as direction is concerned. So keep what I said fresh if you are trying to figure out short term direction on the daily charts.

I will pick up where I left off on the training. These were the three things I was talking about and discussed the first two already. These are some of the biggest reasons traders fail to become profitable.

1)  Place trades out of fear of missing a large move

2) Reaching for trades, trying to make up previous losses

3) Create a mental directional position that makes it impossible to trade against when the market turns against you.

If you tell yourself that the market is going to go up, based on whatever it is that helps you determine that and you are strongly convinced, you will blind yourself to any future price action that says differently. Not a good idea. You will repeatedly get stopped out of your positions, because you will not allow yourself to see both sides of the market.

This is a real big one and not to be taken lightly, as are the other two. Your subconscious mind will not allow you to take a trade in the opposite direction because it will go against everything that you hold to be true, so you become blind to the real price action before you and repeatedly get stopped out, wondering what just happened. Only after the markets have closed and you look back, will you see what was happening and tell yourself, “I can’t believe that I did not see that”. It happens to traders all over the globe every day.

How do you avoid such foolishness. Answer:  Keep an open mind to direction and always tell yourself to look at both sides of the market. If the move is up and you are in it, fine. Look at the next two higher time frames (separated by a multiple of 4 or 5 – I use 4) and identify the status of their trends. If it is unclear, you can always trade out of the middle time frame and let the other two stand idle for a while until it becomes more clear.

At this point you need to trade the price action alone, not what you think is going to happen or what should happen. Forget about it. Trade what you see and not what you think. What until you see a solid base trade setup and move on it.

The other point is, if it is not clear, again, forget about it. Leave it alone, take a break, walk away, give it some time. Don’t allow yourself to take more than two stop outs on any one move, it is just not worth it. Let the action finish up and then you will see where it wanted to go after all, but you can learn from the price action and be better prepared upon the next directional move.

Now doesn’t all of that make sense?  Sure it does. The next question is going to be, do you have the self discipline to do just exactly that? Only you can answer that, but if you are not sure, you need to get sure, FOR SURE. You need to know yourself pretty well to answer these questions. If you have doubts, you need to start going over it in your head ahead of time. What are you going to do if you find yourself in this situation? Force yourself to answer the question and don’t leave the table until you at least have the answers.

Next, you need to find the will to follow through with your conclusions. One way is to play out the script in your head over and over. Repetition has a way of cementing the ideas into you, so that when you need  ”memory recall”, you access  the hard drive of your mind and bring it up. If you write out the process even better. That is like adding 4 gigs of ram to your system.

So much more to say, again not enough room here. I will recap these 3 training points, maybe over the weekend if I can slip it in, ready for Monday trading.

Have a great weekend !