Day In Review

Today worked out.  Nicely, at that.  A plan "came together", references came into play, and a little situational awareness went a long way.  Here is today's trade, with the usual explanation:

2/11 Session review + various references

You can immediately see how important references were in executing and offsetting this trade.  But before I get to that, let me also mention how important discipline and its cousin patience were today.  When the market opened and basically just sat there for hours, the tight chop likely got most participants frustrated and drained, as they attempted to find a trade in the fog's midst.  Very easy to get in a wreck when you're driving through that kind of weather - both financially and mentally.  While the financial loss is kind enough to only pound your account balance once, the loss of mental capital is even worse: it can keep you out of the market when the real opportunity shows itself, often resulting in a double loss!  I've found that keeping yourself ready to respond at any moment while limiting your responses to only strong opportunities is a great way to make and keep money.

Let's frame up the day: Opening above value, in yesterday's spike up.  Looking above, references become the previous day's high, the high from 2/6, and the all-time high at 89.  Looking below, we can use the base of the spike as support, with the pullback low from yesterday at 52.75 as a significant reference - it was the furthest yesterday's rally could manage to give back, was the only time one-timeframing ceased, and also marks a multi-1/2hr bar balance pullback low.  With the market opening up above that level, I know that if the market is going to develop into a downtrend, that level must be taken out with force.

Instead, the market just sat at the open, fat and happy, stuck in the previously described rut.  Finally, after wearing many traders out, the market moved down to the pullback low area - but can't even print it!  That would be clue 1.  After a small bounce, I could clearly see that selling interest was just pitiful down here - this could be the beginning of a reversal.  But nice and slow - need to get the shorts loaded up heavy, so they can later be dumped out en masse when stronger hands run their stops.  Let's call that clue 2, but let's also not get ahead of ourselves - this market is still developing trade.  The sellers had one last chance to knock this thing down when they took the market down to 54.50.  You can see on the tick chart the buy response was swift and unforgiving.  This establishes clue 3 - the display of momentum that was so critical in cementing in the trade idea as valid. Notice how it cut right through the small res level - yet another affirmation that stronger traders are taking full control. 

Then in a bit of deception, they back off.  Having seen this play out many times before, I'm familiar with what's going on: they are making the market look weak, getting shorts who trade solely off price-feel loaded up to be dumped out yet again.  In the interest of having a smaller stop distance, I used the previous res level (marked on the chart) as my entry location, knowing it wasn't likely to get much better than that without the scales tipping over on the buyers. This gives me both good trade location and smaller risk on the trade, but requires patience and nerves of steel to pull off.  I'll be the first to admit that even with all the affirmations and confirmations and levels holding the trade idea together, it was still not easy to do this trade.  Not because of the trade itself, but because trading simply isn't easy.  All I can do is make it less difficult by establishing a good foundation for each trade I initiate.

Now, how do I know where to get out?  I don't want to short-change myself, but I also don't want to overstay my welcome.  In figuring this out, I recalled an interesting bit of market structure was brought to my attention earlier in the day: the proximity of a series of highs that were in a downsloping fashion, also marked on the chart.  The opportunity that this creates is unique in that there are likely to be buy-stop order clusters above each high, since it's such a visual and obvious reference.  Now, as each cluster is tripped, the market is pushed into the next cluster.  As those stops are executed, it pushes price up again, and you have a domino effect in the market.  With everyone who's caught short simultaneously scrambling to bail out, the market can make a near-vertical advance.  You can see how fast this played out on the tick chart.  Putting my exit order up there was a bit of a speculation, since the market didn't have go that high, but given the proximity of the first domino to the day's high increased the odds of it actually playing out, which it thankfully did.