Monday, May 14, 2012

Gappy To See You

5 minute candle /tf on left, 1 min candle on right

Another day of pain.

Gap down opens are difficult because - obviously - things are already down by the time the market opens. 

So what to do?  You have two choices:

1) go long for a bounce
2) wait for a bounce to clear resistance so you can trade  WITH THE TREND.

The chart above shows choice #2 -- it required a lot of patience.

Eventually the market came off the bottom and "rallied", however, a quick check of Market Signals showed tremendous weakness (XLF, XHB, KOL, EWG, JJC, EWP, UNG, OIH all red).

The next step was to check a Higher Timeframe to figure out where Resistance would prove futile.

A 5-min chart showed a clear descending TL (chart on left)

A few minutes into the touch -- one could draw a slightly turned down TL and then it was a safe short with 8 tick stop.  The rest was nothing but downside. 

So key elements:

1) Determine the Major Market  Direction (trend down day! this was obvious)
2) Determine a clear resistance level to enter (this required a lot of waiting)
3) Set it and forget it.  

As it turned out - -/tf fully retraced to the lows for 80 ticks... with essentially no heat.

I missed this trade unfortunately... but hopefully next time we all catch it.

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