Do You Believe in Targets?
Today was a great day to practice drawing trendlines instead of trading. The range from high to low was 6.1 points — not just an NR7 day, but the narrowest day in weeks. When I find a day where I’m not happy with the setups, I’ll sometimes practice finding relationships I might miss on a more hectic day.
Today I didn’t have to look far. This is a five minute chart to show most of the last two days. I’ve drawn the trendlines in different colors to make it easier to see the parallel lines. The sequence for drawing parallels is always the same.
Find two pivots that seem important to you and draw your first line (points 1 to 2.) Copy that line to the pivot between those two points that is the farthest away (3) and extend it into the future. Pay careful attention if price approaches that line.
It doesn’t always work this well, but today it picked out two of the main reversal points almost to the tick. Although I have them listed as “targets”, perhaps that isn’t the best term. If you trade in multiple contracts (or shares), this is a logical time to take some profits. Price sometimes will break right through parallel lines, and of course, sometimes it doesn’t get that far.
Although I stayed on the sidelines today, do I see any potential trades (if you ignore the small range)? Look at the opening pattern. We had a gap down that immediately broke through yesterday’s low. Some volume. Some excitement. Here’s what I said last Thursday.
Any time you have a breakout failure, you must at least consider a potential trade in the opposite direction. Because if the change in trend continues, everyone that shorted that break has to cover their position.
The second bar (or the third bar on my 3-minute trading chart) gave a potential entry signal when it reversed. There was another potential signal at the magenta number 2. On the 3-minute chart the Stochastic oscillator gave a clear divergence as price couldn’t clear yesterday’s close (blue dotted line.) Small gains today, but even on small-range days chart reading works.
