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Trading notes 07/22/11
Early this morning I got to work with a student on some of the ways we can
handle the consolidations that occur after a strong advance or decline so I
thought I would also share some of those thoughts here. Here is the chart
we were working off of for the overall market read. Its the 15-minute
EURUSD chart.
The market had made a solid advance the day before and was easily
blowing through some of the crunchy levels that had been acting as
resistance in prior attempts to rally. Overnight the market had tagged the
1.4437 crunchy and immediately came back down to test the one below it.
That is one of the first clues that the advance is running out of steam.
Nowhere in the advance had it done that prior so it was a change in
personality and makes the two surrounding crunchies the boundaries we
could use to either play range plays from inside or a range expansion play
once the market exited the boundaries.
The chart is aligned to the time of day that we were starting so we mapped
out a plan to sell off the crunchy above at the recent high or to play longs
beyond it or to play sells below the 1.4389 crunchy as a play on a deeper
consolidation of the advance. So in total we had three possible setups from
this look. Four if we also count the first test of the 1.4389 crunchy from
above after a move back up to the high. At this point any or all of them may
setup so really the exercise is to just wait and see which ones do. It was
just after midnight and unlike 20-years ago I tend to need sleep so I left him
to stalk out the trades with the plan of attacking them when I woke up in the
morning. On a 15-minute chart things don't happen very fast so I figured
there wouldn't be much of a change overnight and if there was I would just
adjust my plan accordingly.
As it turned out the market just consolidated inside the crunchies filling out
a decent looking M pattern and setup a clean break look just before 8AM.
This was my preferred setup of the three because I like to play expanding
rather than contracting markets if I can help it. Here is the break look.
Here is the entry chart for the play I was around for. You can see it
breaking that lower crunchy and then forming the first signal below it while
allowing the stop to get past the last swing. The target should be at least
as much as the stop. In this case with the play being a break I targeted the
next crunchy below.
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The main lesson from this one is to try and have multiple setups from the
same look so that you can focus and wait on the plays to come to you
rather than winging it or forcing things without a plan. There are plenty of
opportunities so it is always safe to wait for the ones you like the most.
Be sure to ask for help when you need it. We can meet in the room and
go over some of the setups in real-time to help you get a better handle on
things. If you don't ask I cant help. Have a great weekend!
God bless you ~
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Watts Trading Group
A smarter way to trade
