Trading What I See

Yesterday I mentioned marking the daily highs and lows on your intraday charts, and of course I should have included the previous day’s closes. That’s the dotted blue lines on my charts. You can see how they stopped price at the end of yesterday’s trading, and three times today before we finally broke higher.

Lots of traders use what they call pivot points - calculated levels from the previous day’s high, low, and close. Some even include today’s opening. If enough traders are watching one of the pivots they will work, but I prefer levels that everyone can see. Besides, by the time I include Fibonacci levels, trendlines, and reversal pivots I’ve got enough lines to keep me busy and find all the trades I can handle.

We almost made yesterday’s low after an opening drop, and there was a nice divergence there for a long entry. When your moving averages are moving sideways (notice the white 34ma), don’t be surprised if prices don’t quite make obvious targets. Traders get impatient and try to anticipate reversals.

Another thing that seems to happen when there isn’t a strong trend — the Fibonacci retracement of 89% seems to show up more often. And when an obvious target (yesterday’s close) matches the Fib level, better think about taking some type of action — in this case profits. The second hit of the closing level gave another nice divergence. A short here didn’t work out too well, because we were going sideways, but anyone taking it shouldn’t have lost any money.

A 62% retracement matching a Stochastic oversold condition is another nice signal, but with both moving averages going sideways I pass this type of trade.

What I’d like to point out is the last stalling action at the previous close (last blue arrow.) Alan Farley, in his excellent book The Master Swing Trader talks about this situation. When price comes up to a resistance area his suggestion is to short the second try and buy the third. He would actually buy in that hesitation before the breakout. Would have worked beautifully today.

Where do you exit. Once again, when a Fibonacci level (a 100% Measured Move) matches an obvious target (in this case a parallel to the lower magenta trendline), consider taking action. Prices could go higher, but you should at least take partial profits there.

Alan Farley’s The Master Swing Trader