Friday, May 15, 2009

Making the Hard Trade

Some of the best trades are the hardest to make. Early in the morning, we broke above the opening range in the ES futures (top chart) and looked ready to take out Thursday's high.

Meanwhile, per the morning Twitter posts, we came into the day sensitive to it being a range day and saw that the important XLE and XLF sectors were not confirming the upside breakout. Also looking sketchy at the highs were XLB and XLV. Per the historical analyses, we were sensitive to seeing market weakness today.

Unable to take out yesterday's high, we moved back into the morning range (bottom chart). Note how you didn't need to catch the exact top to recognize that the upmove was failing and play a reversion back to VWAP as a first target.

Making the hard trade: It's all about preparation.