Well.. I gotta say, I'm quite surprised by this huge rally. Opening up the computer this morning, there was already a huge 50 point drop (4050-3998), so perhaps in hindsight, it had to go up a somewhat, and days with greater than 50 point moves are rare, so going down another 50 points was highly unlikely. But its still surprising for things to go up so high so fast. I will attach both a 5 minute and 1 minute chart. The 5 minute is just used to show how I got my major 5 min trendlines, and most of the work is on the 1 minute.
A - This is a 5 min SL across just the overnight highs.
B - This is also a 5 min SL but slightly down angled given that price dropped down so quickly that using only the first SL meant that price was so far away from it.
C - There is this fairly significant drop below the open. On the one hand, I think it shows a serious downtrend, although that should be obvious by now, and on the other hand, this might be a move that needs to be retraced since we were left without doing trades at these levels.
D - I hadn't intended on taking trades today, but I just figured this down move looks too good to pass up. Most of my loses are from random trades, so if I just keep to very well defined trades that I've been working on (trading in the direciton of the trend, taking the proper trade in a retracement and not just getting in cause I've seen it go so far already), then I thought this would be much safer. I'm out for a small profit very quickly because the profit target was hit.
Anyway, let me use this spike down for an initial DL.
E - Just before the open, we have a break of the DL and I'm itching to get into a short again. I put it below the RET after the DL break (the break and RET are together), but I'm out of this trade very quickly because I didn't want to get caught up in the frenzy of the open. I didn't actually realize we were so close to the open when I put the trade on.
I'm out for a tiny profit as well so I'm at $53 or so and should be done for the day.
O - At the open, we have lots of chop. I expected price to drop right away (stupid to have this expectation perhaps), and all it does is go sideways so just as many people want to buy as sell.
F - This low just after the open ends up being used to draw an initial DL that I will make my 5 min one since it uses major swing points.
G - I note here that price bounces off, and this level acted as resistance before the open. Its interesting, perhaps maybe good confirmation for going long, but these are just too random and in the middle of nowhere to actually provide a reason to take a trade. Maybe it helps give you confidence in a trade, but certainly shouldn't be the reason for a trade.
I also use this swing point to draw a tighter DL. (But no way am I going to connect two bars beside each other as per ND!)
H - So here we reach the first 5 min SL, the tighter one. We penetrate, but drop down below. Lets track if a short would be filled. Sure enough, price does drop, going right through that DL.
Now I'm really hunting for a trade. I think this will be my easy trade for the day since I've worked so hard to wait for something to happen at a 5 min trend line. Price drops so quickly though that there is no good place to take a short.
I - We have a bit of consolidation here, and I finally enter a short. Well, you can see how it turns out. Whats funny is that I sat through price going up and down a couple of times, and I already had my profit target set at one tick below entry just to cover commissions after the trade wasn't working right away, but it never got hit. Then I slid it up to get out BE at my exact entry, but I still couldn't get a fill. In the back of my head I wondered if I should just hit close and exit at the market because am I really going to risk price going all the way back up just to save 5 bucks??
Well, that is exactly what happened. The stop loss was hit for 4 points and I'm kinda mad that I didn't get out when I should have. Of course since price came back down to my entry I thought if I exit now I will miss the big drop down so getting out for tick profits I shouldn't do.
At any rate, I'm now at -$27.
Was the trade a bad trade? It really was the first entry after the big drop down based on the 5 min trendline poke, so this is good. But perhaps by this point, we have 5 minutes of congestion so I should have waited.
After this was all over I went through the chart and marked areas where trades could have been taken. There is a down arrow below H, just before the drop. Given that we hit the 5 min SL, trying for a short below any of these bars is I think a more statistically probable trade than shorting below any other random bar. Will have to do testing of course.
J - Here we bounce of the same SL again, and even possibly in the previous RET as well that almost touches the line. Neither of these two shorts go anywhere, but maybe exits at BE could be made. It seems like when this type of trade works, it works right away, so if price doesn't move in your favor in a 1 minute or two, take an exit for minimal loss if possible. I might miss some good moves that eventually go, but if the losses are kept really small, this might be better while I climb up the ladder slowly.
K - So playing this trendline again, would going long above the trend line work? Here too we would fill, and have to perhaps sit through almost a 3 point loss before it takes off.
L - So now we end up going higher and reach the original 5 min SL. There is a possible short below that might fill if entry was only a couple of ticks away from the low of the bar, but I think I would not be filled if it was a point away.
The long is tricky because at no time is price really above the trend line until a few minutes later when it really takes off, so a long might never be placed to begin with, and when it takes off there is no good place to enter.
By this point now, I guess I have to forget thinking about a short. All downsloping trendlines have been broken, and we are 20 points above the open now. Up to this point, I kept thinking if price goes up, it will just allow a short for a much better price higher up. I really hadn't considered the rally up too much, only up in so far as retracing that big and quick move down 30 mins prior to the open. But lets face it, this is a strong bull rally by now.
M - Just for fun, I can draw this SL above here. Although we don't have a break of the DL yet (unless I drew a really tight one), we do still have a higher low, and what looks to be a break below a previous swing low, so in essence, this looks like it could be a reversal already under way. So I might be inclined to go short here at M. But this would in fact be the worst place. Price would quickly break the SL and keep going.
So when there is a strong trend, only trade in the direction of the trend. What's a strong trend? No idea really, but 30 points up probably qualifies. Now at what point is a reversal safe? No idea as well, but perhaps a break of a 5 min trendline should be at least one rule.
N - The break of this trendline here looks much more solid and when it breaks, it breaks quick. But once again, it goes nowhere. Any shorts would have to be scalps for ticks, and they are all losses more than likely.
SUMMARY
Well, I'm kind of mad to be down -$27 when I was up earlier. But you know, I was taking legitimate trades based on what will be in the trading plan. Of course I guess I should have packed away the trading idea until the trading plan is well formed, but ah, the excitement of it all, the idea that I can make a few quick points in what looks like a solid down move.
I'm perhaps most mad at the fact that I didn't see this up move at all, and yet its gone up 50 points!!! Once my 5 minute supply lines started breaking that should have been a solid clue, and although it was 20 points above the open, it still means that there was 30 points left to grab.
Well... good lesson today and it only cost me $27 to learn!
At the same time, I should also be proud that I didn't enter a trade based purely on emotion.
I'm also mad that price went up to be honest. It seems so stupid for everyone to be buying given all the problems going into this week. But trust me, I know I cannot be mad at this. Its just a bunch of traders with lots of money in their accounts working to extract all the money from mine. So I just have to work a little harder so that I can put some of their money into mine for a change!
