May 10 2010 Overlay and Trades

I spent 45 minutes trying to get a read on the prep this morning. Part of the problem was the lack of good data displayed with the Ninja/Zen Fire console.

The structural difficulty was the gap up and the distance the market has traveled over the past few days.

I settled on my visualization vs. using many of the specific structural concepts I often use. However, the structural concepts are built into my feel after doing these detailed preps for a year.

The prep turned out to be extremely accurate and I traded it using my new execution rules which are fairly basic.

To sum it up, my strategy is to hit pullbacks, continuations, and retest fail patterns of prep zones. I combine this with some projecting of channels and triangles. I think it makes for a solid plan that I can execute without hesitation.

The weakness for me is always going to be a bid or offer at a zone without a retest fail pattern. I tend to get low ticked in these areas often.

You can see I was a bit out of position after the 2nd trade today. The price came in shallow of my 1047.75 zone but gave me a pull back and continuation attempt.

In the past, I would have been stopped out just below the inside low/lower high or low ticked. Executions here were prone to get low ticked because the previous support for the day was above 1047.75.

I generally use more macro support areas and had my zone lower than the local AM support zone.

What kept me in the trade was my belief in the sideways oscillation being the probable outcome. It could be considered a minor error entering early like I did. However, in many other scenarios, that entry would be required to catch the move.

When this happens, my policy will be to give the trade lots of room. Thus, eliminating the chance of a fake out stop loss that would have been a winner.

I exchange for this elimination, I will take a big stop out from time to time when I am wrong. That outcome will be lower probability and should cost less than constantly getting clipped out on my winners.

It is important to remain tough in these situations.