Today is March 19th and the markets saw some nice price action from the start of the session.
That is where it began today, with a slight rise just after the open. It was like someone pulled the plug and down she went. The market was just in a continuation off the lows of yesterday where it put in a bottom and worked its way up to a double top formation just after the open. Sellers were there in force and the market dropped 15 S&P points top to bottom, 1165 to 1150 where it pulled up at the close to end the session 1156.
The market will be working against this selling pressure on Monday morning with a few more S&P points left to the upside before initial resistance comes in. So, we shall see. As day traders we need to read the market and interpret what we see. But trading is a little like chess, in that you always want to look out ahead and anticipate what your opponent will do next. That is fine, but just don’t be to convinced about every move. If something different happens than you projected, it can be very difficult to trade against an anchored believe, so hold your opinions loosely and interpret what you see as it unfolds.
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Traders, investors, institutions, move to position themselves in the stock market every day so that they are able to take advantage of price appreciation. Basically they want to make money for themselves and there clients, a worthy goal. Every investor or trader can not make money so there have to be people that come up short. How do we consistently become the ones that come out on top and pull this off ?
Study the price patterns and behavior of other traders. Since most traders and investors loose money, we don’t want to do what most of them are doing, that is clear. So how do we ultimately know when to buy and sell ?
The answers to those questions as stated is in studying the price. Price action is, first “price” and “action”, or price movement. Successful traders need to focus on price movement and that seems obvious to most, but this is not what often times happen. Trading indicators often take center stage, but it should be the other way around. Indicators are good, but not at the expense of studying the price patterns and behavior of the underlying issue.
It boils down to when to buy and when to sell, another obvious conclusion. The question is how much risk can you take to see your desired outcome? Traders to often take on more risk than they can absorb as there entries are far to lose. You need precision entries that are virtually spot on. Some may say, that is not possible and I beg to differ. There is always a small window of tolerance on any trade, but it should be kept down to a minimum if you expect to keep your loses under control.
For me, while I day trade the price action on the S&P 500 emini’s I rarely ever risk more than 1 S&P point. There is 4 ticks to a point each broken up into $12.50 incriments per contract. A trader needs only to find a few points per day to make a nice living, but you need to be able to really read the price movement, formations and tendencies all while keeping your stops to a minimum.
Being successful is also about knowing how to manage the trade after your order is filled. In a choppy market, you can not let the market move in your favor by several points and because you want more, hold out, only to see all of the gains that you had, suddenly evaporated and then some. A trader who expects to either supplement his income or make a living from day trading can not let something like that happen.
Today’s trading was a good example. I put on four trades towards the end of the day and the last one was at 12:30 pm West Coast. The market dropped off a ledge it was holding onto for several hours. It looked like a possible rally was at hand but things changed and down she went very quickly. I did go short at exactly the spot I wanted and scaled out at +2 ticks, +6 ticks and +12 ticks at the very bottom. I was in scalp mode and prepared to ride the momentum on that trade down. I was buying into weakness (to cover my short position at a profit) and held out until there was no more left in the move.
The point is, I am sure there were traders who did not cover and watched in just a few moments the move completely reverse, forcing them to cover at a lose. If you are day trading the price action you will not let that happen to you. I feel if you have good gains in any trade, there is no way you can let that trade turn into a lose. If you struggle to take your stops, you have other issues at hand which can be discussed in another post.
Price Action Day Trading happens every day the markets are open. This is the study of price movement or price bars in any time frame and that alone, no indicators or anything else. Most traders use indicators to help them see what the charts are saying, but a pure play is in reading the chart alone in this manner.
To day trade successfully you need to understand the key components of support and resistance, price action is apart of that at its core, learn this and you will be moving forward.
If traders have questions about this topic or any other trading topic, feel free to email me. I will be glad to answer your trading questions. Until next time, trade on and be safe
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