Tuesday, March 21, 2006

Patience pays off. I ran an errand to ship a bunch of my son's personal items to the new city he's living in. I also needed to get my mind off the support and resistance back and forth the Dow and Emini S&P were giving us. Events actually made me grin as I left. I took a quick look at the Japanese candle stick charts before I left, saw a break out to the upside and stuck to my plan. Honestly, I hesitated to turn the computer off but I'd made my mind up and indecision breeds losses. I walked away. So here's how it went.

I drove over to the Greyhound shipping depot in my area, dropped off the two boxes and gave them far too much money. The invoice included a fuel surcharge. I'm waiting for that to show up on the round turn commission for trading commodities. It's everywhere now. Plane fares, even after paying high ticket prices. Even my mechanic charges a fuel surcharge on his bill. I can't figure that out because it's MY freakin' fuel he uses to test drive my van. I expect we'll see it on cucumbers and lettuce this summer. Anyway, returning home after my Tim Horton's double double I booted up the charts and sat down to see what was up. After I write this I'm going to try another screen capture in case you don't have charts of your own. These are the types of profitable trades you should be waiting for. And yet it's also a good example of how easy it is to get faked out.

The 12:40 bar on the 10 minute chart of the mini Dow Jones broke out again to the upside and closed high on the candle at 11402. It was another break out bar from the recent highs that had just formed while I was returning. I'd missed the morning rally accidentally on purpose for the reasons I've just explained...Discipline. When the close of that bar was taken out I went long. I rode that baby up figuring we're going to set a new pace higher and finally break out of these indecisive doldrums. This bar soared up to a high of 11413 and promptly sank to a low of 11308. The formation created was a double top with my bar I'd gone long. I'm totally engulfed and stopped out for a loss. Here's where it gets nerve wracking!

When the close of 11309 gets taken out to the downside I went short. In truth I didn't even plan my stop. The sell off was fast and I wanted on board. Usually I like to plan the stop loss first. As it turns out I had time to plan it but it sure made me uncomfortable that far away. High range bars like the 12:50 leave no place for a tight stop unless you go into the lower time frames like the 5 minute or one minute bar chart. That's exactly what I do.

So what proceeds to happen is my 13:00 bar proceeds to rally and I send in a stop just over the double top at 11402. The truth of it is my records show I set it at 11401 because I was moving fast. The next bar started to make me think I's stopped and reversed incorrectly as a mini rally ensued. The floor traders were probably testing resistance and searching for buyers to step back into the S&P pits. I grated my teeth, popped this morning's coffee into the nuker and filed my shipping receipt away so I didn't have to look at the screen. I'm not comfortable with a stop and reverse position and I didn't want to watch it prove or disprove itself. The 13:20 bar started to prove my position again but still I hesitated to bring down my stop to break even. Even though the high candle, high range bar seemed to set up the pattern, the entire morning was built up with bars just like that and this could all be a fake out. There is really no way to predict these things in truth. Anybody who tells you otherwise is kidding you.

Well, to make a long and profitable story a little shorter, it wasn't long before I was extremely happy to be short. Study that chart. I was able to pull the stop down at the end of each ten minute bar to the previous high and just let it ride. It wasn't until minutes after 3 o'clock that I got tagged out and I really wanted to be gone. I pulled the stop in so tight at 11317 it was going to get me out fast I hoped. There turned out to be more on the table but I don't like to be in that close to the end of the day. What a beautiful run and frankly I think I'll go out on a limb here. Today is an indicator of a nice topping formation and I'm thinking if the week plays out, I might shift my bias to the short side. Of course, tomorrow should be see saw after today's down side action. We have to rest now and again!

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