One of the most important things a trader or investor needs to do is develop their own sense about price movement, one that is independent of other inputs, especially news.
I hit the sack a little early last night, and woke up a little late, immediately noting that the futures were down significantly from yesterday’s high and close. Not seeing any particular news to justify a big negative reaction my first thought was that the decline was overdone and due for a “surprise” up move. That’s just raw instinct based on thousands of trades and experience over the years. What really matters to me is price and price and nothing but price.
Let me explain with an exceprt from this mornings Trader Talk transcript, just under 1 hour ago:
10:08:37 Mike: Here’s why I’m still interested in the long side at all – the S&P 500 is trading just under what is very clearly the line in the sand between holding support and turning this line into new resistance (which it currently is) IF price is to regain that level and turn it back into new support, I want to have an outsized position in either futures or ETFs and at as low a price as possible such that, ideally, the position can be held in relative safety at a b/e stop for the balance of the day.
10:09:49 Mike: Nasdaq, while down more on a percent basis, remains ABOVE that same line already.
10:10:07 Mike: % matters, but the horizontal level where folks have stops matters more.
10:10:31 Mike: For example, I have longs below that line that I do not yet feel are threatened.
Later this morning:
10:52:22 Mike: 1524.50 buy stop limit NQ.
And the result:
Price matters most, and what matters most are simple, nearby, horizontal levels of support or resistance.
It takes only a little experience and some basic rules to start to develop a sense for which levels are important and which are not. I continually endeavour to explain how I come about identifying key levels and patterns, sometimes in more detail than anyone would naturally prefer I am sure! The key to remember is that any bias we may develop to direction must be primarily developed with a heavy weight on the input price gives us.
And far less weight on the news of the morning…
05.03.02 11:10 #