Thursday, April 18, 2013

Trading Example: April 18 2013

A Typical Trading Example

I primarily trade the futures, so that's where I get my examples. The analysis, though works for any equity or other tradable instrument.

Focusing on price and volume is my thing, as I have said more than once on these pages. My indicators are a 30-period moving average, candlesticks and volume bars. I fool around with other studies - Ichimoku charts are really cool-looking - but those simple tools are my bread and butter.

So, everybody in the room where I typically trade was absolutely certain today that Hell was upon us and that the S&P 500 was destined for 1420. Well, not everyone thought the next stop was 1420, that was one of the more optimistic predictions. Anyway, I know I'm giving the game away before it starts, but look to the left side of the chart below. What it doesn't show is a seemingly endless drop in the futures since the day before. People were shouting that "this had to hold" and "we've broken all support" and the like - you know the score.

Spoos April 18 2013
Futures April 18 2013 the turning point

To be a good trader, you have to keep your wits about you. Everybody knows that, and everybody thinks they do that. But if you don't recognize the emotions playing inside you and prefer to dismiss them, you'll never be a good trader. A huge spike down is bound to raise the fur on any cat's back.

So, we get that big spike down to the lows of the last couple of weeks and everybody was busy loading up shorts. At least, that was what everyone was saying. It's more the expressions of glee and delight that tell you what traders really are doing.

Anyway, I was paying attention to the developing chart and not busy counting my short profits like some others. So, I casually mentioned:

TheSlayer Apr. 18 at 1:06 PM
Everybody is bearish, with reason, but if this thing turns up, there will be a lot of short covering in a hurry. $ES_F

And so it went. I wasn't sure if people were getting the message, though, so a few minutes later I elaborated a little bit:

TheSlayer Apr. 18 at 1:10 PM
There was a volume surge at that low, possible it was a short-term blow-off bottom. $ES_F

Things continued for a bit, and the shorts were starting to get a little quiet. So, one more comment, to be clear:

TheSlayer Apr. 18 at 1:16 PM
Shorts are hurrying to lock in profits, very nice surge here. $ES_F

Now, you probably think I'm just busy patting myself on the back, but I don't have to waste time posting here to do that - I'm real capable of doing that otherwise! But the whole idea of this blog is to educate and maybe help you - the person looking at this - just a little bit. You can learn from my adventures, even if I am a self-touting bastard.

Below is the reason I felt confident that the bottom was in for the day:

E-minis chart
Futures April 18 showing volume surge

I realize it's not totally obvious from this chart, but this was the biggest volume spike in the entire run down, and it came on a sharp dive that quickly reversed. They may not ring a gong at the bottom, but this is the next best thing. After that, the futures followed my 30-period moving average just like an obedient puppy.

Anyway, I hope this helps someone out there. I remember when I was starting out, I found simple stuff like this helpful.

TheSlayer Apr. 18 at 1:31 PM
Closing strong would be Bullish for overnight and tomorrow. $ES_F

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