Trading What I See

After the volatility we have had over the last week I had several expectations for this morning’s opening — both wrong. It’s a good thing I trade on signals rather than what I think is likely to happen.

Before seeing the overnight trading I expected a gap, with the most probably direction being down. If that had happened I would have been looking carefully for any type of reversal signal as a buy. When I saw we would open higher, I expected the opposite and looked for a reversal and continuation down.

At point “1″ there was a nice divergence as we hit Friday’s low (red line.) As you can see, it didn’t go anywhere. Breakeven trade. Then we had a nice double bottom at point “2″, but no divergence and it wasn’t at a Fib A-B-C level.

When we started the gradual climb I looked for a potential reversal at the normal Fibonacci external retracement numbers of 127% and 162%, but again no divergence or other confirmation for a signal.

What I completely missed at the time was the formation of a rectangle leading into the lunch hour. If I had seen it I wouldn’t have taken the trade, because the volume wasn’t correct either during the setup or at breakout. But it would have made me much more cautious about expecting a reversal later. Fortunately today it didn’t cost me anything.

At point “3″ we finally turned down at the 262% level (the next important Fib number), but again nothing to confirm a change of direction. Some days are like that. Without signals it was just “one more day at the office.”