Dec 022010

This is a bit tricky.  The contrarian in me wants that gap filled.  But it’s hard to argue with determined buyers who are willing to pay higher prices.  We had a move up and now as I write this yesterday high is providing support at 1208.  I don’t want to wait to the last minute to write this cause I have to prepare so this is all subject to change depending on how we open.

At the open we can:

  1. Test up
  2. Test down
  3. Consolidate

Trading with the Odds just wrote two blog posts showing consolidation is likely and further upside potential should be limited.  So I think some of that large gap will likely be tested.

I highlighted some potential areas of support & resistance:

I’m kind of drawing a blank as to specifics.  I’ll definitely be looking to short 1211.75 which held overnight.  That’s my one play of the day because even if we head lower we’ll probably test that.

If we see strong buying then I’ll try to get long on a pullback.  Yesterday wasn’t a strong move up, it went up on two spurts of buying (possibly news-driven).  So I think strong buying isn’t likely.  And upside potential is limited (my opinion, not fact!).

If we see strong selling I’ll be looking to get short on a pullback and not fade it.  The downside potential (gap fill to 87) is huge.

If we’re balanced then I’ll be trading between 1202 & 1208/1212.

As I learn more about trading the more I realize the key is detecting OTF involvement.  Many have asked how to do that.  I’m no expert, just learning it myself.  But I look for strong buying.  Higher volume on moves  and then lower volume on pullbacks.  Any strong high volume move I assume is OTF until I can prove otherwise.

Many traders such as FT71 can fade against the strong moves but I’ve not been good at it.  Yesterday my biggest loss was on the short side.  On days like yesterday it would have been better to trade long.  It takes a lot of patience to do that and sit out most of the day but in the end not losing can make more than winning.

I hope I’ve been able to convey a little of what I’ve been learning.  I’ll also be watching Euro, Crude, and for the first time, FCX which is an SMB “stock in play”. If anyone is trading SMB stocks or has taken their training, please let me know.  I’d like to learn more.

Good luck with your trading!

PS: We’re dropping down to 1205 since I wrote this so that shows sellers are interested.  I’ll be looking for them at the open and more importantly an absence of buyers.

Yesterday someone asked what the pop in ES was from.  Someone asked the same today in Twitter.  I don’t ask why any more.  It’s too complicated for me to understand it and by the time I find out what the media thinks is why, it’s too late to profit from it.  So I just trade it.  The tape will tell me what I need to know. Why pay for a realtime newsfeed (which is distracting as heck) when the market tells you first?

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