Friday, June 19, 2009

When Not to Trade - Part 2

Just in case Tuesday's post didn't make an impression on you, here's another clear example of when to stand back from an otherwise enticing trade.
Once again, we're using the NYAD as the dominant signal and the line in the sand for entry signals. While some traders favor using the TICK and/or TICK volume, I tend to downplay its usefulness other than looking at the slope of the 2 minute TICK bars for really short term trades and to confirm entry triggers. Just my impression after watching the TICK and the NYAD for years, but I really believe the NYAD will almost never give a false signal whereas the TICK will kick em out on a regular basis.
This morning's open did look bullish for the Qs. . .perhaps exaggerated by the wildly optimistic upgrade to MSFT by GS.
The NYAD, on the other hand, was anything but bullish right out of the gate.
While the Qs were able to rally to R2 early on, strength quickly faded on declining volume.
At 11:15 there was a truly odd print on the Qs as the low of the bar dropped to 35.98. . . perhaps a harbinger of things to come as the parabolics fired a SELL dead on the bar.
The NYAD had been on a SELL since 10:40, but past chart analysis should have warned against entering until the signals were in sync.
The Qs fired a parabolic BUY (or cover) at 11:40. . . and frankly, I'm hard pressed to see how that signal got issued, but there it is. With the Qs mid pivot at this point, the odds are for a further decline to R1.
This is reinforced by the NYAD which, at 11:40, is till solidly negative with the parabolics downslope 45 degrees, so the plan is to stay short and not bail.
At 12:25 the parabolics fir another SELL on the Qs, supporting the short existing position.
Finally around 12:30 - 13:00 an extended squat bar forms right on R1 and, exhausted from the
previous 2 hours, I exit the position.
In hindsight, a definitely sloppy trade that netted $ .29 for 105 minutes exposure.


Tom said...

Hi BZB, thanks for continuing to knock this point home. I am wondering why you aren't using nasdaq advancing/declining shares when trading Qs..?

bzbtrader said...

That's a good question. What I have found is that the NYAD offers a little bit of a leading edge and prouces fewer false signals when trading the Qs (and most other stocks & ETFS) especially when watching 2 -10 minute bars.