Tuesday, July 9, 2013


Talent hits a target no one else can hit; Genius hits a target no one else can see.Arthur Schopenhauiser 

In a perfect trading world a prudent trader would enter a long trade at or near support and sell at or near resistance. Sounds simple. However, I chuckle at the many times I've so calmly and methodologically entered my trade after identifying a high probability set up with my stop loss in place and my support and resistance levels clearly marked on my chart only to bail out of the trade in a panic to lock in the slightest of gains only to see the price rise (or fall) to those predefined levels of support and resistance. Was it my subconscious desire to prove myself right that even the smallest of profits would validate my trading system or was it that I had very little faith in my trading analysis to being with and just grateful that I didn't lose money? I have to admit it took me awhile to truly believe in my trade analysis. I slowly gained confidence as I began to fully understand my analysis to the point that I felt I could defend the merits my trading system just like a student defending their doctoral dissertation.

Buy support sell resistance is a statement that even the dumbest of traders will quote to appear they understand the markets. Although that sure sounds like a great trading plan finding support and resistance and determining if its going to hold or break is really what separates the successful traders from the ones that blame a corrupt market from reaching financial freedom.

So now that I've finished digressing lets move on to the subject. Oh yes targets. Below is the PnF chart posted July 1st highlighting support and resistance levels. We spoke about the 1626.4 level and the 50dma and 20 dma both of which the market cleared on Friday breaking out of trading range. But what would be the next likely target if the market continued it moves up? Using the PnF chart below you could see that 1652.1 would be the next level of resistance. Bingo bango today we closed at 1652.32. What does this mean for tomorrow. First we have now reached the same level of June 19 before a 90+ point drop from high to low occurred over a four day period. Remember that I wrote about how I saw this as bullish as it represented a transfer of ownership from weak to strong hands and now here we are are back at the same area. However, it took ten days to get back to this level from the lows. Although we are resistance the daily price bars have not signaled any bearishness since they are closing near the high ends of their price range indicator demand is winning on a daily basis. We are at a critical price point since a break of 1652.1 resistance will likely lead to a retest of the highs at 1687. So we don't rush in an short here. The prudent move would be to wait for either a break of resistance and a test of that broken support to initiate a long position or a close below today's low 1642 on increased volume to initiate a short. Lets see what happens.

Thanks for reading.

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