Congestion
Sometimes sideways movement is full of Fibonacci ratios and perfect channels. Sometimes it’s not. It’s always easy to look back at a day’s action and say “Today was not a good trading day.” I’m always searching for a way to say that before taking my first trade.
I’ve mentioned several times one of my techniques for avoiding consolidation days. It’s nowhere near perfect, but over time it saves me a lot of money. Today was an example.
For the first hour I’m looking for setups, using both today’s and yesterday’s price movement as basing points. Even on what turns out to be consolidation days if I find signals early I’ll usually trade, even with a narrow range. But if I can’t find early signals and the range is not expanding, I mark off the first hour’s high and low. Any signal inside this range then requires multiple reasons to trade, and the trade must look like it could break the early range.
Today started with an immediate reversal from yesterday’s close, and we dropped without pause to yesterday’s low. No entry for me there. The bounce looked like a tradable pullback as it stopped at the 50% level, but now we are into the second hour with no trade. I probably would have taken a divergence setup at that point, but it didn’t happen.
Every other reversal was either inside the early range or, like the 11:30 divergence, would be taking a trade back into the congestion. Sometimes I’ll miss great entries into breakout situations, but more often it will turn into a day like today, and I’m glad I didn’t trade.
