Trading What I See

Today was an inside day with little movement, and the few setups that occurred couldn’t manage a break of the first hour’s range. As I’ve pointed out before, a narrow first hour often keeps me from trading unless the market changes character during the session.

The small move up from the open looks as though it stopped at the 127% retracement of yesterday’s last drop, but it was actually higher than that during pre-market trading. There was little volume as everyone waited for the ISM report at 7:00, and evidently that was a minor disappointment.

By the time the report was released we were too far from the pivot for a close stop, so I waited for a pullback that never occurred. Once a narrow first hour range is set, the market will often respect that high and low for the rest of the day. My procedure is to wait for either a breakout or a good setup that looks as though it may break from the range. End result — no trades today. But there still are some examples of setups that I like under better market conditions.

Although the yellow trendlines look like a triangle, I never trust one that keeps going sideways to the apex. They seldom turn into successful trades. But during the lunch hour we broke the bottom trendline and made a 50% pullback. Pullbacks to broken trendlines allow close stops, and often become nice trades when the trend continues. I also like them when the pullback reverses at moving averages that have just changed direction.

Of course we were stopped by the first hour’s low and a longer term trendline that was visible on the 15 minute chart. When the market couldn’t go down it decided to try the other direction. Notice the same setup as we broke another trendline and pulled back into the cup formed by the moving averages.

I use the same rules for trendline breaks that I use on patterns — if the break is to the upside it must have increasing volume; to the downside volume isn’t that important. And of course they shouldn’t occur in congestion like we had today.