Trading What I See

Understanding your own trading style is critical to trading success, and when the market doesn’t offer signals that match that style patience is the best practice. I’ve labeled the chart today showing where the signals I trade on just didn’t occur. Because today I didn’t trade at all.

Point “A” was a nice early drop that could have led to a reversal signal, but after yesterday’s flat close, only a strong divergence would have convinced me to enter there. The yellow trendlines show that there is no divergence at “A”, so the break up through the moving averages is not one of my signals.

At point “B” we start the first pullback in a potential move higher. But if you’ve followed my trading analysis very long, you know I expect the first pullback in a move to be at least a 50% retracement. I like signals when price is bouncing off moving averages as at point “C”, but this was only a 38% retracement with no encouragement from the Stochastic.

The nice rally to point “D” was followed by another pullback. If a first pullback is 50% or greater, the next pullback is usually 38%. If the first pullback is only 38%, sometimes the second pullback will equal the first. But today we only got a 25% retracement at point “E.” Again this doesn’t give me a signal without additional strong confirmation.

With very small pullbacks, even trendline channels (not shown) tend to fail. Only when we get to point “F” does one of my expected Fibonacci levels work as price reversed at a 127% external retracement of the drop from Friday’s high. But that is normally my exit point. It only becomes a signal to take a position if there is a strong divergence. Looking at the Stochastic you can see that isn’t the case.

I know traders that would have done well today, but my trading style requires that the market set up patterns I’ve seen work over and over in the past. And to have patience on days when this doesn’t happen. If you’ll review the last week, you’ll see that it has fit my style quite well. Today didn’t. Learning the difference is one key to trading consistency.