Nov 042010

This morning I gave 3 hypotheses for what I thought could (not would) happen today.  So far #1 is ruled out and that leaves #2 & #3.

Let’s look at my swing tick chart:

Today really surprised me.   Yesterday buyers weren’t that interested but today they were very active.  I went short at 1207.  I actually went short at 1204 pre-market when it looked like it was going to hold.  I thought the market would drop down before the open but it didn’t.  Around 1209 I thought the market was topping out but that ended up not working out anyway.  So my average cost is 1207.  My stop is about 1216.50.  The market is trading at 1218 right now but I’m not going to stop out because the move up came at the close and a move up into the close was to be expected.

You can see several volume patterns at the top today and 3 pro bars.  This tells me that professionals are very active here and in the current context I interpret this as professional selling.

For daytrading I did quite well.  I took several shorts and only had one loser for 2 ticks which went positive shortly after I got out, but with 15 minutes left in the cash session I didn’t want to risk it.  With good reason as prices later went up to 1218.

Tomorrow I’ll be watching closely to see how price moves.  I expect at least a little retracement into yesterday’s range and if I don’t see some selling I’ll look to exit the swing trade with a small loss.

  2 Responses to “Senario 1 ruled out, 2 & 3 still possible”

  1. Michael, so you are short 2 units of ES in your swing trading account? Are you going to hold them through the employment numbers?
    Is averaging down part of your plan? I ask because I think averaging down can do a lot of harm (at least in the long run). A better plan for me is averaging up, when your trade is confirmed by the market action. E.g.: I fade a move in front of a support area. The area gets tested and I see big orders lifting offers, bids getting thicker etc. then I put on my second unit. So, I am just curious what your experiences are with averaging down.


  2. I never average up. Never. That increases my cost basis and makes me vulnerable to a pullback which would wipe out my existing profit. This can work for long term trend following systems, for example buying pullbacks in an uptrend, but it doesn’t work for me for the short time frames I trade. I want to scale out if price is moving my way so that any pullback will have a minor impact.

    As for averaging down, I will not average down because I’m in a losing position. However, if I do not have a specific entry price I can enter with a partial position and then enter another partial position at a better price. Unfortunately I choose to go with a full position at 1207. One choice would have been half at 1207 and half at 1216.50 but that couldn’t have been known in advance of course.

    The important thing to remember with “averaging down” is that it has to be planned in advance and has to be within the risk tolorance. Spur of the moment averaging down is never good.

    So I’d love to add on here at 1216.50 which was the top of my original estimate but I can’t.

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