I've been extremely bearish all day today and as a result I have given someone who is bullish a lot of money.
I wanted to point out a nearly perfect cup and handle that is forming on SPY. I'm still bearish, so we'll have to wait and see if this pattern plays out to the upside. It probably will just to tick me off. I hate the market.
Yesterday I wrote about using Fibonacci Price Extensions to set price targets and I wanted to show you one from today that worked perfectly. Remember, on a bull flag, the initial impulse is followed by a pull back (often to a moving average). Drawing a Fibonacci Price Extension from the beginning of the pole and then to the end of the pull back gives you price targets based on Fibonacci numbers.
It is often uncanny how well this works as you can see today. The bull flag produced a price run that stopped at the 100% price extension to the penny and then leveled off there for 30 minutes!
I wanted to point out how I used Fibonacci numbers to make my final trade today. Initially I was playing for an Elliott Wave pattern as price plummeted and then violently retraced. However, I noticed that price pretty much stopped at Fibonacci's 50% retracement level. This gave me a concrete area to place my stop once I was in the trade which I took as price hovered around that 50% level.
I placed my stop just beyond the 61.8% level because I knew that if the price broke out from there, the edge on this trade had disappeared. After placing my trade I used a tool in Tradestation to determine my target for the trade called the Fibonacci Price Extension.
This is capture of my actual trade at the end of the day including the Fibonacci Price Extension. I plotted the extension from the beginning of the swing down and then up into the swing high--or the "flag". Tradestation plotted the "extension" of the price from that point giving me Fibonacci targets for my trade.
I expected a larger move than actually happened. But when price stopped right on the 61.8% extension twice, I knew it was time to take my profits and run. Price hung out there for one more bar before heading up the rest of the day.
Normally, my target for a "flag" like that is the 100% extension. But when you see price fail to break levels above, it might be time to take your profits and run.
The trading day has about an hour left, but I'm done for the day. This was a very difficult day for me. It was my worst day trading so far this month.
I started off with a stupid trade--trying to fade the opening gap. I thought it had good prospects of filling so I wagered more than I usually do on gap fades. Apparently it is unwise to fade gaps on Fed days. I noticed a Twitter post from Scott Andrews that the gap today had low odds of filling about an hour after I stopped out.
No big deal. Now odds favored a trend day and I had plenty of opportunity to earn back my money. I took the first pullback near the moving average and held on until it dipped below and I couldn't take it any more. Another large loss.
Then price broke above the 20 and I took that as a continuation of the trend (price hadn't broken the 50EMA). That trade at least went in my direction for a few minutes. And then I stopped out of that one for a large loss. Ouch.
I then switched to the DIA chart because my trend day concepts weren't working, and I saw the moving averages attempting a crossover. I made a large trade and it went in my direction quickly and I envisioned making back my losses for the day. And then the market went nuts after the Fed announcement.
It went nuts in the direction of my trade, but unfortunately, for a split second price rose up above the moving averages and triggered my stop by 2 cents and then headed down hard. How frustrating. Instead of making back my losses (and probably a lot more), I was stopped out with another loss. I decided to quit for the day.
Corey Rosenbloom sent his condolances because of my sucky day along with a tip on an aggressive "Fed Day Trade". I took the trade hoping to make up some of my losses. Fortunately, I was able to make up nearly all of my losses with one final trade.
I think I've learned my lesson about getting too aggressive on a day that the Fed makes any decisions. However, knowing myself like I do, I'm thinking I'll probably make all the same mistakes again. Stay tuned.
I've learned after some disastrous trading days that the day following a strong day doesn't typically work with my style of trading. What does work, however, is fading price extremes. On a day that was basically flat, if you were to fade every time price neared a Bollinger Band with a stop close by on the other side, you could have executed 12 successful trades today.
It is a good idea to avoid focusing on just one way to trade. Having a "toolbox" full of different types of trades can mean the difference between getting chewed to bits on a day like this, or making some decent money.
I quit the day early claiming that the trend day had fizzled. It hadn't. It turns out that we got a near perfect trend day with just a couple of touches on the 50 EMA and a close at the low of the day. It sure didn't look like that's what was about to happen as we got that bar that peeked just above the 50EMA with 25 minutes left in the trading day. But I guess that's where sticking to the plan pays off. I didn't, and I missed out.
The day isn't over yet, but I think I'm done trading and I wanted to point out some things that happened today. Today started with a big gap from Friday's close and continued downward with a lot of pressure--our first clue that this could be a trend day. I warned Twitter followers that it was probably a bad idea to try and fade that gap.
I've circled what I think are the best short trades of the day--trades with edge in the direction of the trend (orange circles). Price then consolidated into a descending wedge and I thought it was time to load up and wait for a break below the wedge for a powerful move. We got the break, but price didn't move too terribly much before turning back around and then flat-lining.
Notice how the bottom of the wedge held all day as support (blue arrows). At this time 3:30 pm EST, it looks like the day is either going to remain flat or reverse, so I'm going to take my meager winnings and quit for the day.
Posts
All Comments
Stumble It!