Tuesday, August 27, 2013

Going back

Education is the passport to the future, for tomorrow belongs to those who prepare for it today.
Malcolm X 

We all know (except for Ms Cleo and her crazy network) that we (retailers) cannot predict what tomorrow will bring in the stock market however, we can prepare for what it eventually brings us.  Of course that is the whole idea of this blog.  Preparing to trade by identifying key areas of support and resistance and looking at volume for clues for high probability trade set ups.  Remember I said high probability and not guaranteed. 

Posted below is the 60min PnF chart posted back on July 19th highlighting key areas of support and resistance. This is what you call preparing for tomorrow.  We make our decisions only once price approaches these key areas of support and resistance because these are the areas where the battle of supply and demand ensued in the past resulting if large moves thereafter. Therefore, if we are keen enough to interpret who is winning this battle maybe just maybe we can jump on for the ride.  You will notice that these price levels haven't changed very much as you should expect if they are significant areas of support and resistances. 

Where are we now?  Posted below is the 60 min PnF chart of the SPX as of today's close.  You will notice that I've highlighted the next area of support and resistance at 1624.3.  You will also notice that its about a point away from the 1625.2 posted above.  My gosh its changed!   Yes of course it changed due to the change in volatility.  Remember the box sizes are calculated using the Average True Range for the past 20 periods which changes...duh!.  The important thing to remember is that the 1625.2 (1624.3) area saw large price moves after it was broken so to expect the same would not be unreasonable just not guaranteed.  Remember we call this high probability trading. 

Below we have plotted our support and resistance areas on the SPX daily chart.  Today's price and volume action was nasty.  We gapped right to support (now resistance at 1653) which saw a large amount of supply come into the market closing the day near its lows on the highest volume for the month.  The media blamed it on Syria? Sure whatever...Syria.  The lead up to the sell off is more interesting as you will notice that the recent up move (blue highlight) was done on light volume indicating lack of demand on the professional side.  This gave us a clue that the selling might continue from the Aug 15th decline (first yellow highlight).  

We now see that 1625 is fast approaching.  This is where we watch to see how price and volume react before making a decision to go long or short. Fun times ahead!

Thanks for reading. 

No comments:

Post a Comment