Spotting Setups vs. Trading Them
On July 12 (just a couple of posts ago, since I’ve been distracted), I stuck my neck way out and wrote about a Wolfe Wave short setup on Google when it had been screaming higher. It included this chart:
This evening, I opened QuoteTracker to that same chart, with the ensuing data. As you all know after the “news” today, here’s what it looks like:
So, I’m a millionaire now, right? Wrong. As you can see from reading that entire post, I did a splendid job of noticing the Wolfe Wave, but trading it, not so splendid. Entry/exit rules too stingy, too anal, too cautious.
I did achieve my main goal which, as I said, was to post what I saw as an evolving setup, vs. waiting until after it played out (like, now) and singing the second verse of Woulda, coulda, shoulda. I wanted people to see that these things can actually be spotted in real time, but that it’s hard, and you can be wrong, and even if you do spot it, trading it correctly is another animal altogether. Upshot? This stuff ain’t easy.
Enough of that. What about the chart? Well, two things: often when the price tags the target line on a Wolfe Wave, it’s time to flip and go long. At the very least it’s time to cover the short. Number B would be the fact that big gaps down which draw a Long White Line (blue on this chart), indicating buying pressure right from the open, often mark a near-term bottom. [Note: this would be a stronger signal if we’d closed at or very near the high.] We may be in a nice position for a swing long now. However, if that long is going to be profitable, it will NOT break the bottom of the Long White Line, which is to say, a long trade from here would have an initial stop at least at today’s low.
The market is looking interesting, even though it’s midsummer and almost time to take a snooze for a few weeks (August is almost like trading on a holiday, except for weeks and weeks). Let’s watch.
Joshm said,
July 20, 2007 @ 10:17 pm
So you might say you are the trader that cried wolfe? Just kidding, as I always your posts and information are much appreciated and respected. Thx for the time you put into your work.
Will said,
July 21, 2007 @ 10:37 am
Joshm- Yep, cried wolfe then looked away. Gosh darn me to heck, as I would say in front of my daughters. I’m very impressed with the way these setups often play out, and I consider it a bonus that there’s no easy way to code a scanner for them (although I’m working on it… you there, doc?) — these hail back to the old days when trained eyes counted more than trained computers. Thanks for the visit! Hopefully we’ll catch some more good ones like this on daily charts and actually get to put a trade on with them.
doc40 said,
July 21, 2007 @ 11:54 pm
Right on Will…. I forgot to tell my wife about your Jul 12 post and she bought some GOOG just before the earnings news.
Brett said,
July 23, 2007 @ 8:48 am
I liked the call from when I first read it. GOOG moved up way too fast, I took profits a little early, but I didn’t want to stick around too long. I don’t know the Wolf Wave rules, but one might be forming on FWLT, what do you think? That stock has gone up way too fast as well. Keep up the good work.
Ned said,
July 24, 2007 @ 4:43 pm
The Apple has started to fall off the tree.
cheers.
FXI looks ripe too.
Will said,
July 24, 2007 @ 10:14 pm
Brett - Thanks. Having taken profits looks pretty sharp at this point.. that recent 558 high may hold for some time. As for FWLT, I’d be hesitant to trade that one as a Wolfe Wave… the swings aren’t quite symmetrical enough (I like three nice clear higher highs about the same distance apart). But again, I’m no expert on them, and am just trying to watch for really pristine setups.
Ned - Yep, you know I always keep one eye on that sucka for a short setup. Thanks for the heads-up!
Declan Fallon said,
July 25, 2007 @ 4:21 am
There is always next time….
DJF