Monday, August 24, 2009

Replaying the First Trade of the Morning

OK, I'm going to do something I've wanted to do for a while. I'm going to disengage from the markets and illustrate my first and only trade from this morning. My hope is that it helps put together a few of the things discussed on the blog. (Click on chart for detail).

I went into the morning noting strength on Friday and overnight strength. We opened below the overnight high, but with good advance/decline numbers and positive TICK. Per usual, I waited for the first few minutes to see how early trade progressed. If you click on the one-minute ES chart above, you'll see that we had early selling and then a solid buying burst off support around 1027.50. TICK was quite positive on the buying.

My entry was on the first TICK pullback to zero. That came at 1030.00 in ES. My stop was right below the 1027.50 early session low. My initial profit target was R2 and the overnight high (1032.50), with the idea of riding a possible breakout move that would potentially take us to the R3 level. It was that latter potential move that provided the good risk/reward on the trade. Otherwise it was about a 1:1 risk/reward, but with indicators on my side.

We moved promptly to the 1032.50 level on solid TICK, and I decided to hold 'em, not fold 'em for the quick gain. I saw good strength in the Russell stocks and good buying interest.

We moved lower, with TICK moving back toward the zero area and I sat out that chop. As long as we didn't get significantly negative TICK readings, I was going to stick with the trade. I observed, however, that the NASDAQ and Russell indexes pulled back more than ES. That hit my warning radar. I also saw that a significant number of stocks in my basket were not trading up from their opening prices, also a yellow light.

We then moved back to that 1032.50 area in ES on good TICK, but now NASDAQ and Russell were below their morning highs. I immediately sold out at R2, which was 1032.00. A two-point gain; nothing to write home about, but an acceptable way to start the week.

As I write now, we're back near the 1032.50 level and may well break higher. That's a separate trade idea; I don't do the looking back, woulda, coulda, shoulda.

Total time in trade: 11 minutes.

In all its neat planning and fuzzy discretionary execution, that's one of my trades.