Thursday, January 8, 2004
Issue Contents:
| 09:09 | Daily Swing Trade Today's stock setup. |
| 09:28 | Good Morning Good from far... |
| 16:13 | Apologies Missing in action. |
| 16:16 | Active Trader Transcript Real time forum log. |
Yesterday, we set up a short sale in DIA case the Dow Jones Industrial index was in the process of making a spike high on the daily chart. We had two out of three bars of a reversal pattern, and while the market was weak in the morning, it managed to claw back up to par near the close, and no third confirmation candle of a reversal pattern was formed.
Those who were trading the DIA itself would not have taken home the trade, while those of us who used in-the-money options were not stopped out at the close.
This is the 15-minute chart of the Dow Jones futures, and in early morning action, it is trading above yesterday's high after breaking out of a triangle pattern. At this point, we will expect a gap up open for the broad indices, but will NOT be covering our position immediately when the market opens in case the "gap and crap" phenomenon takes place where it opens up by starts to back peddle immediately. Instead, I will be waiting to see what happens in the first hour or so, and if the $INDU goes back under yesterday's high, we will continue to hold the JAN 106 PUTS. If not, we shall admit defeat for now.
Since this is a parabolic blowoff -- described in yesterday's gold comments -- we can expect this sort of price action when attempting to "pick the top". While it might be exciting or even scary to do the extreme ADX short sale, the fact is that, just like for any other swing trade, the bet size is made according to our usual risk and money management formula, and any loss is managed accordingly so that our long-term goal remains intact.
As the broad indices attempt to continue their vertical ascent, we must remind ourselves that most parabolic moves end abruptly, and therefore, we must tread extremely carefully. For traders who know that they are simply buying high and selling higher to the next greater fool, this market is great, but for investors who intend to hold their purchases, this is the point where the temptation to "just buy it" becomes so strong, but quite often, it's that old phenomenon of "good from far, but far from good."
I have been experiencing problems with data collection with TradeStation 2000i over the past month, and this morning, I switched over to TradeStation 7. Spent the day rebuilding workspaces, etc., and we will uploaded analysis as we complete the switch.
Real time forum log.
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