Monday, March 24, 2008

Making the Good Trade: The Importance of Preparation

Notice the distribution of the NYSE TICK early this AM. We have been solidly above the zero line, indicating that the vast majority of NYSE issues have been trading at their offer rather than bid price. That's a clear indication of bullish sentiment among large market participants.

If you had been sitting by my side at 8:34 AM CT, just four minutes into the session, you would have heard me exclaim, "Holy Shit!" The reason was that we had a couple of sell programs hit the market and the TICK could not even hit zero. (We got as low as +210). That suggested very solid buying interest out of the gate. Given that we were near multi-week resistance (per the recent post), it suggested to me that: a) we would test that resistance; and b) we had a good shot at breaking it.

Reading these patterns of short-term buying and selling interest early in the session can help you frame hypotheses regarding market action that form the basis for solid trading ideas. Had I not been very familiar with TICK patterns within the first five minutes of trading, however, the idea and the trade would not have been possible. This is where screen time and the internalization of those market patterns become all-important. No amount of trading psychology can substitute for that kind of preparation.