April 19th 2012
By Scott Pluschau,
I have been all over the developing and continuing weakness in the Nasdaq 100 mini futures recently. The right hand side of the blog has the titles for articles of which many are worth reviewing in the Nasdaq 100.
Well, as long as the Nasdaq 100 is in the downward sloping "Channel" there is only one side of the trade I will be on. Today is a great day to review. The Nasdaq 100 had a breakout to the upside of the "Channel", and there was nothing behind it afterward (See left hand 1 hour chart below). What are the strongest signals? Failed moves or patterns. Today's volume was the single highest total so far in the year 2012. This is a confirming bearish signal of weakness and distribution.
Next a classic "Head and Shoulders" pattern developed on the 5 minute intraday chart (See right hand side chart below). The head and shoulders pattern is a five point bearish reversal pattern. The proper entry point is on the breakdown of the neckline which especially in this situation of the larger degree time frame offered good enough probabilities in relation to the multiple of "reward to risk". I use the "Measured Rule" as a profit taking target, which is taking the distance from the top of the head to the neckline and adding it onto the breakdown point. I have this marked on the chart with blue dashed trendlines.
The proper risk management in this situation calls for a stop loss placed above the right shoulder where I marked a grey X. This is the location where the trade idea would have been invalidated.
I believe there are only two things to do once a trade has been executed with an OCO bracket. Add to it on a continuation pattern that develops, or ignore random market behavior. "Tickeritis" is a disaster for traders who have a good trade on. Losses are a part of the business and to be expected. In this situation a loss would have been gladly accepted for the opportunity at a profit.
There is risk that should be embraced and there is risk that should be avoided. I believe the main reason why traders get anxiety when placing trades or anxiety once in a trade, is because they are either trading "randomly" or because they have no "edge", which basically means they are guessing/betting and not speculating.
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(Click on chart to expand)
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Source: http://scottpluschau.blogspot.com/2012/04/textbook-pattern-today-in-nasdaq-100.html
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