18 Jan 06: Are We There Yet?
We’ve gotten our lower highs, but a little lower and faster than expected. Low enough and fast enough to give you that queasy feeling like when the plane you’re in hits an air pocket and drops a couple hundred feet.
This isn’t a perfect setup, but few are, so let’s give it a look:
If we get a nice washout downward spike below 42 on the open tomorrow (Thurs 1/19), then an upward break of the opening range which takes us back above 42, it would be a nice place to get long with a tight stop, which is always a requirement. That’s pretty darned picky. The only other clear trade I’d take here is a gap above today’s high (42.46) with the opening few (5-10min) bars descending down to it. Again, picky. But that’s all I’d take at the moment. With options expiration on Friday, may have to hang around until next week to get a good trade entry.
Why not trade off the inverted hammer that formed today? Rules. I’d be going long above 42.50 with an original stop of just under 42, which would equate to an initial risk, or “R” of probably 55 cents. I like there to be nice clear running room for at least “3 Rs”… in this case that would mean I’d need upside potential of around $1.65, or about $44+ on the Qs. Although that may happen, it’s not what I’d deem “highly probable” from the current chart, so prima facie, ipso facto, I can’t take that trade. Rules is rules.
OTOH, if one of those “picky” setups above happens, I might just be able to sneak in with a nice tight stop and initial “R” of only a quarter. Six bits is an easy-greasy upswing from here, so I’d be duty-bound to take that trade. The rules that say “you gotta take this trade” are the more enjoyable ones.
You may wonder where my picky rules come from. A little spiral notebook filled with wisdom transcribed from hundreds of index cards scribbled over the years while trading. What I did right, what I did wrong, what to do next time. You can never learn as much about your weaknesses from books as you can from yourself, if you just keep very accurate and honest records. Otherwise you just repeat the same emotionally-driven mistakes over and over until you give up in frustration.
Did I just wander off on another tangent? Guess so. It’s late, I’m tired, I jump on the nearest soapbox. Cheers.