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Thursday, October 09, 2008

NQ - 100908

I will post some stock charts over the weekend - I have had a few good gap trades this week (and hopefully a few more to come). Here is a chart of the NQ from yesterday - the volatility is presenting some great opportunities. But a chart is a chart is a chart, so it doesn't matter if it is NQ, RIMM, WMT, or anything else - the same principles apply.

Here is what I saw:

1. A gap down and rally to the 50% retracement. Price broke through that level and immediately reversed with a bearish red candlestick that closed back below the 50% level. The next bar was narrow-range and could not rally to the halfway point of the previous (wide-range) red candle. I took this as a bearish sign, and entered short on a break of that bar's low (indicated by the first white arrow).

There was extra risk as the green candlestick closed back above the 50% retracement, but (in my mind) it was offset by what I outlined above.

2. My target was the morning low. I covered on a break of the bar indicated by the yellow arrow on the chart. This was a bullish reversal - a down red candle followed by a green candle that closed above the halfway point of the previous bar (long-time readers know this as a version of what I call "offsetting bars"). At that point, I locked in 30 NQ points.

3.) I entered short on a break of the candle with the long upper tail (indicated by the second white arrow). I thought price had the potential to move back to the morning low, but I placed my target more conservatively at the pivot where I covered earlier.

Overall a great day with 50+ NQ points.



edit - long-time readers know I use "candlestick", "candle", and "bar" interchangeably. And, while there has been a lot of point potential in futures with the recent volatility, keep in mind that you have to adjust the size of your position due to that same volatility.

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