Tuesday, March 25, 2008

Tuesday - Fade the Open Lesson

The fade setup at 9:50 was a picture perfect example of how I scalp the open.
I typically look for a reversal on the 2 minute bars between 6:38 and 6:48. I'm not going to post the TradeStation studies I've run to confirm this time frame, or try and explain why this little window of time is unique, those are topics for another day. . . suffice to say for certain ETFs like the Qs, IWM, DIA and a collection of big cap NYSE stocks, this is a critical time pivot. Since I like to be in and out with a max exposure of 120 minutes, this type of trade has a real appeal for my risk averse nature.

The charts displayed are 2 minute bars, a departure from my daily 5 minute bar summary posts, but these are the setups I use to scalp, watching both 2 and 5 minute bars simultaneously.

At 9:48 price falls off of a 5 bar squat characterised by a hairy top (bars with tails). . . one of my favorite turn signals.
Also, at 9:48 a number of indicators turn negative in sync:
The signal line turns down.
The parabolics turn negative.
The RSI, CCI and Williams %R are downslope.
Woodies CCI signal is downslope and parallel.
The only confirmation lacking is the 10 & 20 bar MA cross, but these are intended as stops, not entry triggers, so these indicators don't negate the trade.

The NYAD falters at 9:48, perfectly in sync with the wide range down bar on the TICK. These are high probability turn signals, and as such, confirm our upper SHORT signal.
If you've ever looked at the STOCK TRADERS ALMANAC, you know that historically 10:30 and 13:30 tend to be low cycle points intraday. While these time pivots are obviously not hard and fast, it's really just about probabilities and for my money, time of day matters. . . a lot.
I'm short at 9:50 at 44.72.
My exit plan contains two options: either the PP pivot, or the 10:30 turn.
I fully expect the PP pivot to get hit, since this is typical behavior for the Qs.
At the same time, I'm keeping an eye on the TICK and especially the NYAD to make sure I don't get trapped in the short position.
The Qs get within .07 of PP at 10:02 and in the following 2 minutes most of the indicators turn positive. . .with the parabolics not yet firing. The NYAD is bouncing off S1 and the TICK is upslope. I get the definite feeling the markets are turning up and I bailout at 10:06 on 44.36.
Total trade time = 16 minutes.
Gain = .36
The trade didn't have the duration I had anticipated, but you're always safer (and typically richer) taking what the market gives you rather than what you expect.
I'm done for the day, back in cash and off early.

1 comment:

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