Once a potential congestion area has been identified, it is often tempting for me to just watch and wait. After all, my philosophy calls for no trading when there is no setup in the time frame observed. It's been exactly the case over the past few weeks.
I identified and marked out big patterns on the broad indexes on April 20. On April 23, there was a test of the upper edge of the pattern on the [$INDU], [$SPX.X] and [$NDX.X] and I stated that I did not want to play the breakout in order to avoid getting trapped in a fake out.
The tendenacy is for price to move to the other edge of a pattern once a fake breakout has taken place, but this is by no means certain, and therefore, I took bits and pieces out of the move down on an intraday basis, but did not swing trade it.
Let's update the indexes now as they near the lower edge of the pattern.
You can see that for the Dow Industrials, the S&P 500 and the NASDAQ 100, the lower edge of the pattern is calling, and people are scared that there is going to be a downside breakout, just like they were hopeful that there would be an upside breakout only a couple of weeks ago.
From the trader's standpoint, we simply say that the price is "near target". As for the potential breakout, we'll believe it when we see it because we know that there is always the possibility that the congestion continues and it chops for days and weeks from here. That is the scenario that typical investors do not ever entertain. /Teresa
04.05.06 14:06 #