Friday, April 27, 2012

Multiple Signals Add Up to Superior Entries

/tf bottoms before massive 120 tick move

Once again, /tf provided a huge set up at 10:18.

How would you get in?

the markets were gapping up overnight but as the market opened RTH,   /tf started selling off sharply -- the speed of the correction was surprising -- there were quite a few strong names working well... with EXPE and AMZN blasting off, gold strong, and of course, it's a Friday near end of month... lots of reasons to suspect we might bounce.

 But traders should not think or predict.

What we knew at the time was that /tf had dropped to 809.20 around 3 am during the European session and bounced and the /tf was fast approaching that level.

 /tf hit 809.40  -- and then two important developments occurred.

 At 10:16  there was massive volume on the 1 min candle.  This usually signals capitulation and often occurs before a trend change.

 At 10:18 it was possible to draw a trendline support line  with 4 touches.

 10:19 - the  trendline down from the open breaks... a poor entry at 812 with an 11 tick stop would have been fine -- although you'd only experience 2 ticks of heat and then a run for the heavens.

 1 contract would have returned possibly $1200 with you experiencing a drawdown of $20.

This is possible because:

1) you identified the previous area of support
2) you waited for a major signal (volume)
3) you established a 3 touch trendline
4) you entered on strength (break of downtrend)
5) you had looked at context (there were several bullish indicators to suggest the market would not be selling off;  gold, AMZN, EXPE, nat gas)

I hope that helps.

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