Friday, December 19, 2008

Santa Claus Is Coming To Town - Probably

Today's action has introduced a new twist into the analysis of the probable direction of the market. While the Dow closed down today the other indexes did not follow suit. The Qs closed in a very tight range completing a b wave triangle from the 12/9 high. The triangle in the Qs is almost textbook on the 60min chart, so this means that the markets must move down almost immediately Monday morning and not breakout above today's high or we will see much higher markets. The Dow has traced out a slightly different and larger ascending b wave.

This is a tradeable move as I see it, and I will be going long on the breakout above Friday's high with a tight stop. Targets are 31.97, 33.97 & 35.44 for the Qs; 9182, 9654 & 9932 for the Dow. That's right, almost 10,000 for the Dow is a possibility.

I want to remind you that I have been positioned long and short, so I will be tightening stops on shorts and taking profits on longs on a breakout.

This does not mean that the bear market is over by any means as the b wave triangles confirm a 3 wave move no matter which way the breakout occurs in this case. If it is up, then we have wave c of C, or wave C of (A). If it is down then, we have wave a or c of D depending on how you look at it.

I must admit that I am a little upset with myself. It really didn't dawn on me what I had done until this week. Back on November 14, I went long the Qs via the QLD and was stopped out on November 19. On November 21, the markets reversed again and we had a positive divergence macd buy signal on November 25/26. I did not realize it at the time, but I can see now that I passed on that trade because I had just been stopped out for a loss. My decision to go short again was sound based on the reversal on 12/1 and potential breakdown and so now I have another loss, which is ok. We will have losses, the key is to take the next trade and I didn't take the macd trade. I had planned for it for months, even giving the cycle turn date on this blog, so I should have taken it.

This is a hard business because it requires a level of self discipline that most people just can't imagine, and the point is that now we have another valid trade setup, and I will take it because it is there. If I lose money, then so be it. That is what account risk management is for.

Take a moment to look at the system tracker. The VLE system had 7 losing trades in a row, and is still up over 20% for the year. Discipline requires that we take the next trade that is in our trading plan even if it feels painful, because the ultimate result will be positive (for a valid strategy).

1 comment:

dave said...

Craig,

I am NOT a candlesticks expert. I offer this message that i got from Google news alert (probably the same way that i originally encountered you) http://www.traders-talk.com/mb2/index.php?showtopic=99343 post #1

Regards,
dave