Trading What I See

Although I try to avoid it, some days I get a directional mindset that would have me fighting the market throughout the session. Today was one of those days. Fortunately, I require more than a potential setup. Until I get an actual entry trigger, I patiently watch the market go against me without being in a trade. It’s a lot less stressful that way.

Some of my triggers require the moving averages to agree with the trade. Others require a Fibonacci pullback of at least a certain amount — or no more than a certain amount. A few require volume confirmations. After this morning’s drop, I got none of those.

We started with a gap-up opening, with little volume. I had no intention of entering here, because there was a 127% retracement level not too far away (red line.) I’ve had that marked on my 15 minute chart since shortly after the bottom was made yesterday. Remember that two of the common reversal points are 127% and 162% of previous moves. A gap into one of these measurements often means a false breakout.

And false it was. This is the Larry Williams Oops! pattern — a gap above the previous day’s high followed by a retracement into yesterday’s range. Larry says in Long-Term Secrets to Short-Term Trading that

It is the most reliable of all short-term patterns I have researched and traded.

You could have entered on the big blue bar as it crashed down through yesterday’s high (green line), or waited for the pullback a few bars later. Either way a nice short sale. That’s assuming you got out in time. Larry’s “official” trade is an overnight hold, so it would have turned into a loser today.

I always consider this just a day trade, and that 62% retracement is a logical place for a bounce. And that’s when I started thinking we would go down for the rest of the day. Look at that volume drop. We can’t have much of a rally on that kind of decreasing volume. We’re going to break through that yellow trendline and I’ll have another nice short.

Sure we will. As I’ve said before, when I’m fairly sure I know what is going to happen …. Which is why I have triggers. On this particular trade I need to see that trendline break. Or sit and watch the market. By the time I had decided the market had really turned, I wasn’t willing to go long. That’s one advantage of being a day trader. I get a new start tomorrow.