Bull Flag on SPY

Yesterday I wrote about using Fibonacci Price Extensions to set price targets and I wanted to show you one from today that worked perfectly. Remember, on a bull flag, the initial impulse is followed by a pull back (often to a moving average). Drawing a Fibonacci Price Extension from the beginning of the pole and then to the end of the pull back gives you price targets based on Fibonacci numbers.

It is often uncanny how well this works as you can see today. The bull flag produced a price run that stopped at the 100% price extension to the penny and then leveled off there for 30 minutes!

Using Fibonacci on my final trade

I wanted to point out how I used Fibonacci numbers to make my final trade today. Initially I was playing for an Elliott Wave pattern as price plummeted and then violently retraced. However, I noticed that price pretty much stopped at Fibonacci's 50% retracement level. This gave me a concrete area to place my stop once I was in the trade which I took as price hovered around that 50% level.

I placed my stop just beyond the 61.8% level because I knew that if the price broke out from there, the edge on this trade had disappeared. After placing my trade I used a tool in Tradestation to determine my target for the trade called the Fibonacci Price Extension.
This is capture of my actual trade at the end of the day including the Fibonacci Price Extension. I plotted the extension from the beginning of the swing down and then up into the swing high--or the "flag". Tradestation plotted the "extension" of the price from that point giving me Fibonacci targets for my trade.

I expected a larger move than actually happened. But when price stopped right on the 61.8% extension twice, I knew it was time to take my profits and run. Price hung out there for one more bar before heading up the rest of the day.

Normally, my target for a "flag" like that is the 100% extension. But when you see price fail to break levels above, it might be time to take your profits and run.

Crazy Fed Day in SPY

The trading day has about an hour left, but I'm done for the day. This was a very difficult day for me. It was my worst day trading so far this month.

I started off with a stupid trade--trying to fade the opening gap. I thought it had good prospects of filling so I wagered more than I usually do on gap fades. Apparently it is unwise to fade gaps on Fed days. I noticed a Twitter post from Scott Andrews that the gap today had low odds of filling about an hour after I stopped out.

No big deal. Now odds favored a trend day and I had plenty of opportunity to earn back my money. I took the first pullback near the moving average and held on until it dipped below and I couldn't take it any more. Another large loss.

Then price broke above the 20 and I took that as a continuation of the trend (price hadn't broken the 50EMA). That trade at least went in my direction for a few minutes. And then I stopped out of that one for a large loss. Ouch.
I then switched to the DIA chart because my trend day concepts weren't working, and I saw the moving averages attempting a crossover. I made a large trade and it went in my direction quickly and I envisioned making back my losses for the day. And then the market went nuts after the Fed announcement.

It went nuts in the direction of my trade, but unfortunately, for a split second price rose up above the moving averages and triggered my stop by 2 cents and then headed down hard. How frustrating. Instead of making back my losses (and probably a lot more), I was stopped out with another loss. I decided to quit for the day.

Corey Rosenbloom sent his condolances because of my sucky day along with a tip on an aggressive "Fed Day Trade". I took the trade hoping to make up some of my losses. Fortunately, I was able to make up nearly all of my losses with one final trade.
I think I've learned my lesson about getting too aggressive on a day that the Fed makes any decisions. However, knowing myself like I do, I'm thinking I'll probably make all the same mistakes again. Stay tuned.

Range Day in SPY

I've learned after some disastrous trading days that the day following a strong day doesn't typically work with my style of trading. What does work, however, is fading price extremes. On a day that was basically flat, if you were to fade every time price neared a Bollinger Band with a stop close by on the other side, you could have executed 12 successful trades today.

It is a good idea to avoid focusing on just one way to trade. Having a "toolbox" full of different types of trades can mean the difference between getting chewed to bits on a day like this, or making some decent money.

I guess I spoke too soon

I quit the day early claiming that the trend day had fizzled. It hadn't. It turns out that we got a near perfect trend day with just a couple of touches on the 50 EMA and a close at the low of the day. It sure didn't look like that's what was about to happen as we got that bar that peeked just above the 50EMA with 25 minutes left in the trading day. But I guess that's where sticking to the plan pays off. I didn't, and I missed out.

Trend Day Fizzles

The day isn't over yet, but I think I'm done trading and I wanted to point out some things that happened today. Today started with a big gap from Friday's close and continued downward with a lot of pressure--our first clue that this could be a trend day. I warned Twitter followers that it was probably a bad idea to try and fade that gap.

I've circled what I think are the best short trades of the day--trades with edge in the direction of the trend (orange circles). Price then consolidated into a descending wedge and I thought it was time to load up and wait for a break below the wedge for a powerful move. We got the break, but price didn't move too terribly much before turning back around and then flat-lining.

Notice how the bottom of the wedge held all day as support (blue arrows). At this time 3:30 pm EST, it looks like the day is either going to remain flat or reverse, so I'm going to take my meager winnings and quit for the day.

Bird Boy

After moving to our new house six months ago, I've become sort of a bird nerd. We live on the edge of some woods and routinely see birds that I haven't seen my entire lifetime living in the city.

Today, my daughter found an injured bird on the side of our house. It was lying upside down with its beak open and looked dead. After looking a bit closer we discovered that the bird was alive.

I picked it up, and it was limp. It offered no resistance as I turned over to look for any signs of injury. It seemed as if it had been paralyzed somehow. I assumed it had been hit by a car--maybe on a nearby highway, and had managed to fly a mile to our home.I assumed that the bird was a blue bird because, um, it was blue. After looking it up, we decided that it was an Indigo Bunting. We brought the bird inside and I got a pipette that my daughters use to feed their tadpoles and filled it with water. The bird couldn't move its head so I let a little bit of water dribble onto its beak. It quickly slurped up the water and looked a lot more alert. We took it back outside incase it wanted to get airborne.

I continued to feed it water and after a few minutes the bird got back on its feet. Surprisingly, it stayed put in my hand and made no indication that it was frightened as I continued to let it drink. My other daughter came out of the back yard to see what was going on and my wife came outside with the camera and took a few shots.
After about 10 more minutes the bird suddenly looked around--like he had just come out of some sort of daze. I released his bowels into my hand (how nice) and took off into the trees.

SPY Elliott Wave

Options expiration days are hard to trade, and I usually stay away unless something interesting develops. Today, we formed a very nice Elliott Wave that created some trades that might have not been obvious otherwise.

Once that big 3rd wave shows up, the trades become clear. A short on that doji candle right on the 200 SMA (near the number 4) with a stop right above the 50 EMA could have resulted in a nice gain as you rode wave 5 down.

These patterns happen so regularly, that it really develops a trading edge that is hard to beat.

Breakout

Mid-day update

SPY is forming an ascending triangle around yesterday's highs. Notice again how yesterday's highs are providing support and resistance (green arrows). A break above the triangle could signal a conservative buy. An aggressive buy would be around the bottom of the triangle hoping for a move up.

Family Portrait

Several readers have asked for an updated photo of my family. We do love Pooh.

Support and Resistance

I am continually amazed at how accurately support and resistance levels play out during the day. I've highlighted yesterday's close (small dotted blue line) and yesterday's low (larger dotted blue line) to show you how many times price tested those areas throughout the day (the day isn't over yet).

The red arrows point out where price pulled back to resistance levels and the green arrows point out support. Using those level can provide excellent places to place protective stops (I usually place a stop just beyond the levels just to be safe).

I threw in an Elliott Wave pattern for the day as well. After some dumb-headed morning trades, I was able to make a few bucks with the Wave 5 trade. Notice how you could use several support levels if you took that Wave 5 trade.

You had the 20 and 50 moving averages and both yesterday's close and yesterday's low all providing support for the price. Over a 35 minute period nearly every one of those support levels was tested with yesterday's close providing the line that couldn't be crossed before we made a nice move up past the highs of the day.

SPY closes below 20 EMA

SPY has been above its 20 day EMA (green line) since early March and today was the first day that we closed below. It wouldn't be out of the ordinary for price to make a beeline for both the rising 50 day moving average and the falling 200 period moving average. If those resistance levels are broken there isn't much to prop up the price.

Notice also how the MACD had been declining the entire time that price has been going up. This should provide some "pause" for those of you who are ridiculously bullish. This would probably be a good time for those holding long positions to lighten up.

Elliott Wave provides a few trades

I was anticipating that there woudn't be much trading opportunity today, but we got several decent trades throughout the day. I only capitalized on my third trade after making silly mistakes on my first two.

The down move around 11:00am should have clued us in that an Elliott Wave was forming. The consolidation (blue dotted lines) provided a perfect place to take advantage of the 3rd wave. I missed this trade because I wimped out after the breakout. I just watched if fall as I wished I had moved more quickly.

The end of wave 4 provided another perfect doji setup for the 5th wave drop. I got into this trade late, and then held on after price made new lows hoping for lower prices. I stopped out at break-even as price came back and took out my stop.

The "abc" pattern after wave 5 provided a few other trades. I took advantage of one of those to book a decent profit for the day.

As I've made the transition from finding "setups" to understanding market "concepts" I've found more opportunities throughout the day. "Concept" trading has also allowed me to vary my position size based on factors "lining up" and providing opportunities with higher chances of success.

A trend day that wasn't

Trend days are usually my best days of the month, so I was interested in the opening action today as we had a large gap down. There wasn't much of a pause and the market continued to head downward.

I noticed that when price inched back after the first 20 minutes that it couldn't overcome the resistance that had been support during the first 15 minutes (1st yellow line). I took a position after price bounced off resistance for the third time, waited a few minutes and then BAM, a couple of nice red candles.

That was my only trade for the day as price formed a channel and bounced around all day before breaking out to the upside and frustrating anyone who was short and hoping for a trend day. There were many internal indicators that were screaming that this wasn't going to be a huge trend day down (including the MACD), so I didn't take advantage of the couple of other decent scalps that showed up.

Another Range Day (so far)

Trading today was like watching paint dry. Again, price from yesterday formed support and resistance for most of the day (blue arrows). And once again, we had a narrowing consolidation for most of the day with a breakout late in the day.

With the opening gap down (even though it was rather small), I had a bias toward the downside and took a short trade (number 1) at 10:30. I was targeting the lows of the day--around 94.00 but price struggled to get halfway there. I was up over 1R but I ended up selling as price broke above yesterday's low (red dotted line).

I then noticed a narrowing wedge forming and I watched for a breakout. I nearly fell asleep as I waited, but I finally took the breakout (#2) above the trend line and the 200 SMA (red line). Things didn't go my way for nearly an hour. I put my stop below everything that I considered support, but I had to suffer as price dropped and nearly took me out of the trade (solid red line). Fortunately it turned around and I got my breakout to the upside. I took profits right after that big up bar at 2:30 as price began showing some weakness.

I was anticipating a larger move after that big push up. However, price didn't make a new momentum high with that push which should have indicated that this move didn't have the mojo it needed to keep pushing price higher.

It will be interesting to see what happens into the close. This was a rough week if you rely on big moves or trend days for your living. Have a great weekend everyone.

The Bulls just can't hold

Everybody is closely watching the 950 level on the S&P 500 for a breakout and confirmation that this rally still has room to grow. I thought we had that today as price consolidated for a couple of hours before breaking through toward the upside. I think the first green arrow was the best trade of the day as price broke though a narrowing consolidation (yellow lines) that formed a nearly perfect wedge.

I took a small position there because I was worried about the overhead resistance of yesterday's high (blue dotted line on top chart). Price couldn't break through in the morning hours, and I wasn't sure if there were enough buyers to push it through at 12:30. There were, and notice how that line became support.

I took a larger position at the second green arrow and held on as we were off to the races--quickly passing the 950 mark. I honestly thought that we were going to see huge buying pressure all the way into the close. But a significant divergence on the MACD at the highs of the day concerned me. After that first bearish candle, I exited.

I still expected prices to climb higher expecting the euphoria of breaking 950 to create additional buying nuttiness. It didn't happen and we bounced several times off of the support line before slicing through after 3 pm. Price tested that resistance line a few more times before heading down towards the 200 period moving average.

So once again we stay put in a trading range that has lasted about a week now. It will be interesting to see who wins this battle. Just make sure you're on the right side of it when it happens. It could get pretty ugly if you're not.

LA Traders Expo

My wife and I just got back from Los Angeles on Sunday. I attended the Traders Expo and my wife jogged around the city. She lasted about 30 minutes in a seminar before she decided that her time would be better spent running through the hills of Hollywood. There were a few seminars that made me wish that I was running with her (and I hate running), but for the most part, I felt like I learned some new stuff.


I had an enjoyable time. I was impressed by many of the speakers. A few fell short of my expectations. Some were there to sell stock systems for large amounts of cash. I resisted.

I got to meet in person several of my favorite authors and bloggers. I'll highlight them here:


Brett Steenbarger who runs Trader Feed and and has written a few great books on trader psychology. He talked about his new book The Daily Trading Coach and discussed how traders sabotage themselves while offering techniques to avoid common problems that traders face. I really enjoyed his talk. Dr. Steenbarger spoke for free and offered an hour-long question and answer session after his talk.

I was a bit shocked when he opened his talk with a story that involved an "F-bomb" and the word "whore". After reading his blog for years, I was expecting a quiet nerdy fellow. I found out that Dr. Steenbarger was a talented speaker who has an interesting background and a diverse set of hobbies and interests.

Scott Andrews who runs Master the Gap presented a couple of very interesting number crunching seminars on the opening gap on the indexes. I had no idea that a gap could be analyzed in so many different ways. The information was great and I was very impressed with Scott's presentation.

Corey Rosenbloom from Afraid to Trade presented an interesting seminar called Idealized Trade Set-ups for the Intraday Trader. Corey was a nervous that he would have a weak showing to his seminar because he was speaking at the same time as Tom McClellan--the designer of the McClellan Oscillator and John Bollinger--son of the designer of Bollinger Bands.

Corey had a gread turnout despite his fears and presented a terrific seminar that kept my interest despite my having weekly mentoring lessons with him.

I also enjoyed seminars by John Carter of Trade the Markets, Merlin Rothfeld from Online Trading Academy , and Leslie Jouflas from Trading Live Online.

Overall, I'm glad I went. It gave me a boost of confidence and helped confirm that I am on the right track.

Today's SPY action

Today didn't turn out the way I expected. After a rough day in many foreign markets, I expected the US markets to struggle more than they did.

I took a position right out the market open. Although the gap was not huge (less than a buck in SPY), I felt that there was enough negative momentum to push the market lower. The trade went my way after a brief move upward.

A pullback to the 20 EMA got me nervous and nearly stopped me out at break-even, but I held on expecting the market to go much lower. We got another swing low for the day that was followed by a stair-step retracement back to the 20 EMA. When that red candle busted past the lows of the day I started rubbing my hands together in anticipation of a large move down. But then the buyers came back in with a large (nearly engulfing) candle. That was my signal that "all was not right" and I got out.

Using the $TICK helped me avoid holding on too long today. We didn't make any -1,000 reading during the day indicating that the selling pressure just wasn't overwhelming.
The market made a new TICK high at 3pm indicating that new highs were coming. I have no idea what is driving the last hour of the market, but it seems to happen nearly every day. I am too much of a wimp to play it, and I've been burned by being on the wrong side, so I chose to close shop early today and avoided trading the afternoon insanity.