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Wednesday, November 19, 2008

A close below 8,000

The Dow closed below 8,000 but is still above the low set on 10/10.

It should be no surprise that the lows are being tested - in my previous posts on "Tracking the Dow chart" I noted the path of least resistance has always been down. This is the third attempt on 8,000, with the second attempt on 11/13 (last Thursday) providing a nice bounce and an outstanding trading opportunity.

Not to sound like a broken record, but I try not to make predictions. I trade the setups that appear, long or short. I mentioned before that a break of the 10/10 low presents a bearish scenario that could ultimately take us to sub-7,000 levels. Kernan from TRADEthemove.com contributed some thoughts on support if that low is broke.

The bottom-line is we are nearing a critical point - will the market bounce and sustain a rally, or are the "buy and hold" investors about to feel more pain than they thought possible?

On the trading front, the NQ Futures followed textbook action yesterday as price broke through the 50% retracement and pulled back for a nice short setup. Price declined to the previous day's low, chopped around a bit, and then continued to the Fibonacci extension (FE).

I entered a short on the "hanging-man" candle (as indicated by the arrow) and covered at the end of the day when price hit the FE.



Anonymous said...

When plotting Fibonacci over futures like NQ, do you take into account of the overnight trading range as well?


Attitude Trader said...

Hi X,

You made mention in one of your resource posts about how price tends to also react around the Fib levels drawn just on the OR. Today on the YM it was cool to see that the first downswing that ended around 9:00 CST bounced within a tick or two of the 138.2% line and then that same line acted as resistance to the high of the swing at the time you went short today.

Also noticed that today's high hit almost exactly at the 50% Fib line drawn over the previous three days.

Just trying to become more aware so I can make better entry decision.

Thank you again for posting index trades. I'm paper (literally) trading the YM as I get back into the swing of things here and seeing what you do when you post your NQ charts really helps me see what I could have done or shouldn't have done on my charts.


Attitude Trader said...


I do have a question. Would you use yesterday's high (like we did today) rather than today's high (which is lower) for the Fib line for tomorrow? Or would you just use today's high (if that ends up being the case)?



TL said...

Regarding the 50% retracement setup, how do you decide whether to cover at previous day's low or FE?

You may have answered before, but how many trades do you make now trading 5-min charts? Thanks~


timo4sho said...

How come you didnt take a partial at the ORL? It seems you held your entire position until the FE.

Just trying to understand!

Would be glad to hear something about your stop management, if you have the time to share it with us?! ;-)


Trader-X said...

Dan - I have before, but generally no. It is like any other indicator...sometimes you get setups one way that you don't the other, and vice versa. So it is best just to pick a way - either over the normal session or over the entire 24-hours - and stick to it.

AT - I usually stick with using the previous day for the current day. But you will see price react to many levels, including the recent swing highs, etc. Just like my answer to Dan above - I try to pick something and stick to it. Otherwise you are trying to focus on 1,000 different things and suffer from "analysis paralysis". Not to mention you will drive yourself insane.

TL and Timo - I just monitor the price action and make my decisions based on that. Did it bounce at the OR low? Is it a weak day? Did it break the OR low and pullback? Things like that. Of course, the most conservative play would be to cover 1/2 at the OR low and hold the other half...but, I don't have hard and fast rules. I just watch price closely.