“Patience has Big Rewards.” That’s another note I have posted on the bulletin board right next to my trading setup. Take another look at yesterday’s non-trades. Fortunately I had the patience to ignore questionable signals. Today you’ll find the reverse — all my signals were there. And I had the reward of only taking signals that followed my style of trading.
The early rally ran up to yesterday’s high and reversed. That allowed drawing the first trendline from the previous high pivot up to point “1.” Whenever I draw a trendline, I try to draw a matching parallel, because that is often where the next trade will occur. Point “2″ is where price hit that parallel line, and it occurred precisely at a 62% retracement of the original move for the first clear entry of the day.
The rally from “2″ to “3″ wasn’t nearly as strong as I would have liked. For a good continuation I want the second rally to be stronger and faster than the first, so I was not surprised that the move ended between the 127% and 162% external retracement of the move from “1″ to “2.”
Now I have a new top pivot, which allows me to draw another upper trendline. And of course I draw the parallel. As I said yesterday, when the first pullback is at least 50%, I expect the second to end near 38%. When the 38% level occurs just as price hits my parallel line, it calls for another entry, but in this case a very cautious one. Here’s a case where my rules are met, but I’m not thrilled by the action so far. I really wanted that second rally to be stronger.
But with patience (and a very close stop) everything worked out as it should. The final top is a Measured Move, the distance from “4″ to “5″ matching the distance from “2″ to “3″. The divergence with the Stochastic was an added reminder that the move was probably in its last stages.
Is that the top? I have no idea. The “safe” parts of this short move are over for now. The last pattern looks somewhat like an upside triangle, but one with faulty volume. That means I’ll do as I always do — wait for the opening bell and re-evaluate as I draw more trendlines and Fibonacci measurements. And wait patiently for setups I really like.
