April 19 2010 Overlay and Trades

I had a good read this morning and stepped up the execution of the premise today.

I executed a trade in the right direction at all the major areas but left too much on the table again. There was improvement today though.

The initial long just after the open was a retest higher low and an obvious opportunity.

The trade was executed mid range but dependent on a higher low to form in order to work.

Details of my trading plan

I have mentioned before that I do not like to need a lower high or higher low to form in an established range for a trade to work.

I prefer to assume a full cycle to the opposing zone and work off that.

The difference today is that the 1182.75 support zone had major basing structure. If it holds, I assume a test of 1193.50.

Since I could not hit the bottom because I do not trade pre-market, I bid into the first pullback. There was not much more too it than that. I had to believe in my premise and let the trade complete.

The long was a correct use of my premise. The short cover was not. It was an example of playing a pattern and not the context of premise.

I saw an inverted pump fake and thought I was about to be squeezed out of my short.

However, for this to happen, the market would have to break with my premise and direction. The price had already tested 1193.50 when I got short. So I believed it would move back down to 1182.75.

Since my premise at the time of the short was to test 1182.75, my break even +1 exit was a bet against my premise. Another higher low would have had to form for the market to stop me out.

This was a bet against myself. The caveat is that noise has stopped me out in the past in these situations. The style I am moving towards requires me to take larger risk if the price starts moving against me in certain situations.

Instead of giving the price only 1.5 or 2 points room, I am going to require the market to make a significant attack of the zone it just came off of to stop me out. This is improbable but will happen.

I have decided that I would rather take a 4 or 5 point stop occasionally and be wrong then take more frequent 1-3 point stops even though I was right.

Of course, I am going to look to avoid areas that could box me into that much risk but I am not going to be timid about playing my premise anymore.

I am right to often to be timid.

I had the long off the lows today. I have said before I do not like holding trades over lunch. I correctly exited after I was almost certain that the price would make another drive lower and maybe retest the low.

I failed to re enter once the price moved back above 1182.75. The structure really looked like the price was going to extend down.

The local bar to bar structure and patterns are becoming more and more irrelevant to me everyday.

The fact that the price drive below my zone twice on heavy volume and poked it's head back above the zone is much more powerful then any pattern at the support area. This needed to be bought.

It's a poker game and a move back above 1182.75 made the shorts panick and caused many to cover. That is what makes the price move, not patterns.