LAND OF MILK AND HONEY

Sometimes, reading charts and having the market seemingly comply has been, as one trader put it, a bit uncanny.  I jokingly said my computer clock was 5 minutes fast.  But there are times when the market appears to play by some set of rules.

 We have heard that the market is going up, going down, or going sideways.  But in those generic claims, are there patterns or trends that seem to give us an edge?  Or do we simple see what we want to see, or is the expection of an event -price to bounce at the EMA- just self fulfilling when it does?  Or, did a significant number of traders think it would bounce and entered trades causing the very event they were anticipating?

Price action has no direction, no plan, no thought nor memory.  PA merely reflects the actions of investors and traders.  I am suggesting that, to improve your trading, you need to also consider improving your ability to read investors/traders actions, or what an I/T is most likely to do.  It follows from the same thought that a DJIA of 12000 was an important psychological point, as was 1300 SNP.  What happens at those "key" spots?  What do I/T do near, at, and above a key point?

PA follows I/T actions, and I/T spend time following PA to execute an action.



TODAY:

The trades have been removed so we can focus upon the setups and reads.  Besides, when we discuss where (and the why) to take a trade, combined with the exit, the trade +++++'s become obvious.  Today, was the land of milk and honey.

The pre-open had a defined resistance and support.  Traders are likely to buy/sell at these points.  Where the EMA is located, has the S/R been challenged, what strength is in the bar(s) approaching the S/R?  These are a few of the questions that help define if we follow the buy/sell expected, or do we play a break out.

THE PLAY:  look for the long at the resistance.  The strong break at the EMA is positive, suggesting you hold.  An additional positive is no close below the EMA, which acts as support when rising. (resistance when declining).  Your stop goes to plus 1, or 1345.75, when the resistance breaks.  Generally, your stop trails price 1-1.25 points to max the value of a running trend.  Pullbacks can be shallow and not hit your stop.  If they do, great.  Look for the next trade.


The resistance BO would be considered a failed breakout.


THE PLAY:   By b1 you have enough information to suggest a short.  Aggressive traders are ahead of you.  They shorted the FBO, or at a minimum the break below the pre-open resistance. By b6 (50% PB of b5) you have a strong short only slightly below the pros; you have a clear wedge with two lower highs from the FBO high.  The exit was at b11 when it hit your trailing stop.


A channel developed inside the wedge.  The comment was made, "no long considerations until a channel breakout".  We had a break, and an EMA failure combined with sideways PA.  The yellow bullish TL is away from the bars, but your eyes should see the run.  B18, b26 then b35, and we are on the buy side of the channel.


THE PLAYS:  One tick above the low tail of b35.  B26 works, but midday trading is not a personal favorite. 

[12:50] <Chartmaster> back to pre open range and long exits

[12:57] <Chartmaster> longs at 45.25
[12:57] <Chartmaster> 50% level pre open
[13:02] <Chartmaster> they would target 46.5 for part or all  on profit
[13:19] <Chartmaster> exit 46.25

PA is back inside the pre-open S/R.  The PA does not know it, but traders do!  Remember.  Improve your ability to read traders.  So, here we are back in the pre-open range.  Your looking for long/short and BO.


THE PLAY: 

We are in the pre-open range. Our thought that traders wanted 46.5 worked. B49-50 were at the support and the EMA, screaming LONG, followed by a second BO.  It would fail, and you could see the shorts jumping on the band wagon.  That gets us to the following:

[14:18] <Chartmaster> focused on trades  like 44.5 is preopen support look for bo short..
[14:18] <Chartmaster> we have ema 5t  so (an EMA) hold is new long
[14:21] <Chartmaster> long wins.

[15:41] <Chartmaster> long exit 53.5

One scenario we look for is a five tick failure.  B58 gave us the 5t referred to in the post.  Short are entering thinking we see 42-42.5 area.  Pros were in at b55.  "Late to the party" shorts get in at the EMA, and are feeling good as PA continues down only to hit 5t and begin reversing.  Pros are out, and the late want-to-be traders are out on b59.  Two things can happen.  Pros enter again to continue the short, or longs see the weakness and act.  If the EMA holds, read LONG.  And we have the bullish yellow TL for support.  The rest was milk and honey.