Trading What I See

There was certainly not much of trading interest today, so I’ll keep this short. A small opening gap led to a tight congestion area at “A.” It was only after price pulled away from this range that you could see the potential for an A-B-C pattern. Which means it was probably too late to trade it.

Of interest is my confirming blue trendline that helped pick the “C” top. Most Technical Analysis books tell me I can’t draw trendlines through price data (this one was drawn between points “1″ and “2″), but I do it all the time. Here are my rules.

When I draw a trendline that passes through price, I usually want it to cross at the 50% level of that price pulse. That means I actually have three anchor points for the trendline — point “1″, the 50% mark of the price move, and point “2.” I probably won’t notice this potential trendline until price approaches point “3″, but you can see how nicely the market reversed there yesterday.

I only use this kind of trendline for confirmation of turns — not for entry setups by itself. And as I’ve said many times, once I have a valid trendline on my chart I try to leave it there until price starts ignoring it. The reversal at point “C” shows why.

The week ended with a rectangle that I considered too small to trade. But again, that is just personal preference. Until we get some direction on the daily chart, small moves are all we can expect.