Tuesday, October 7, 2008

Pure Liquidation


Today was as textbook as it comes. It was steady in the early going only to break down under 1060 on the SPX just about the time Bernanke started speaking. Bush came out and delivered an encore of NOT restoring confidence, and then the market tanked even further after midday.


As you can see from the 5min intraday chart it was a great opportunity to sell the futures on every lower high that was met with resistance and downtrending 20 and 50 moving averages. These patterns are bear flags and are high probability setups to enter trades in any market, or stock. We had numerous bear flags on the index today and each one resulted in a breakdown and wicked selling into the close. If you can time this sort of pattern with an indicator as reliable as the stochastics as shown at the bottom of the chart, you will have great risk/reward trade time and time again. And the name of the game is to always find the best reward for the least risk. The trend is your friend and until a trend reverses you have no business trying to go against it. Your probability of success in trading will rise drastically if you trade in the direction of the trend.

So have we bottomed? I dont know but I will try to focus on that topic in my next post. All I do know is that it is way to late to go short on anything and a bit too early to go long. So watch and wait. Develop your patience and discipline. Scaling into positions might be a good idea the next day or two because I think we are very close to a big snapback rally. This is definitely a daytraders market.

2 comments:

Anonymous said...

That chart looks great. I'll be gearing my strategy towards using the 5min along with the 15min/1min to enter these trending trades. Also after the very choppy early morning trade the market broke the 1057 and daily pivot to setup this trending trade. If we would have had a decisive break above above 1070 we might have had an upward trend.

Jason said...

Yeah I agree completely