Trading What I See

The market has had plenty of opportunity to move higher over the last few days, but the Russell just couldn’t seem to build up any momentum after its breakout last Friday.

This morning gave an opportunity for an early short entry when it set up a nice divergence at the open. However, after the lack of carry through over the last week, I was perhaps too cautious and just watched for the first three hours. Until 9:30 it looked like we would just stay inside yesterday’s range.

The break below yesterday’s low produced a volume spike, and the next four bars tried unsuccessfully to pull back on low volume. I will only take a breakout to a new high or low under specific conditions, usually after a pullback to support or resistance. That allows a close stop on the other side of that level, and that’s what we got during the lunch hour.

Once in the trade, the only question was where to exit. I try to hold more that a single contract so that I can exit part at the first indication of a reversal. But what I am always hoping for is a move like we had this afternoon.

I’ve marked the likely turning points of an A-B-C pattern in yellow — 100%, 162%, and 282% of the distance from this morning’s high to point “A.” Each time we reached one of those Fibonacci levels there was no hesitation, and therefore no reason to exit.

After passing the 162% level it was time to use the faster moving average (13ma) as a trailing stop for half the position. The actual double bottom gave a nice divergence for a final exit. It turned out to be a nice finish to a very boring week.