Friday, October 23, 2009

Creating What-If Scenarios to Frame Trade Ideas

I find it helpful to prepare for the day with "what-if" scenarios. These prime me for action should the market prove able or unable to sustain prices above or below key price levels. An example of such "what-if" thinking was the morning briefing today. Seeing that buying on the existing home sales number at 9 AM CT was unable to sustain prices above the R1 level, I had prepared for a move back to pivot (which happened to be the average trading price for the multiday range). Engaging in such preparation is helpful in acting decisively upon ideas, creating favorable risk/reward once you see that we weren't going to hold above 109.68 in SPY (red line above).