Trading What I See

Yesterday’s 16 point range raised hopes that the market was finally moving again. The rectangle (magenta) created during the day should have acted as support if we were to move higher. Instead we gapped completely through the rectangle and then went sideways for the rest of the day.

There were Fibonacci retracements that I’m sure some traded, but here is why I ignored them. The first drop was to a Fib 38% retracement of yesterday’s entire range. But notice that the moving averages are flat rather than rising. Normally a 38% retracement happens late in a move, and the moving averages have a wide separation. In fact price is usually still well above the moving averages.

Then there is the simple matter of pivots. An uptrend will have higher highs and higher lows, and the opening price created a lower low. Not a good sign.

We pulled back up to the moving averages, and if they had both been declining it might have been an acceptable short entry. But the long MA is very flat, making the entire structure look like congestion.

When we dropped again, price stopped at a 127% external retracement of yesterday’s last rally, and it even had a nice Stochastic divergence. But where are we going? Right back into the congestion area.

The final drop of the day again stopped at a normal Fib retracement, this time 62%. If you look at the larger picture we have sideways moving averages, sideways moving prices. That means low probability trades.

When I think we are in a trend I’m looking for excuses to take trades. But when I have doubts about the trending action, I’m doing the reverse — looking for reasons to watch. Today I watched.