Top40 30minutes chart for January 24th

Quick update for Top40 30minutes chart.

Rising wedge was broken on Thursday and break was retested on Friday and again this morning. Together with break 50 exponential moving average (blue line) was tested and proved to be a strong resistance. Market dived after initial strength this morning and it is currently some 350 points off the high.

There is another less sloped trend line on the chart, exactly where Top40 got stopped. Bellow that line is horizontal support around 28200 and if that is broken we will have very little support all the way down to 27100.

Dow theory is still pointing towards bull run, market made only lower high with no lower low yet. That will happen if 28415 is taken.

On the upside watch for close above 50 exponential moving average and new higher high above 28835.

Trade with trend!

Top40 end of the week review

First three days of last week produced some sideways trading, making it five all together with last two days of previous week. Thursday and Friday brought us some direction, one big down day and one solid up day. All together, Top40 closed between 10 and 20 exponential moving averages on Friday, while close on Thursday was below 20 exponential moving average, third occurrence from December 1st.

Stochastic and RSI are more or less in neutral position, staying around 50 and together with MACD are still showing negative divergences. My personal opinion is that Top40 will still go down in short term – next week or two. If you check how last correction happened in second half of November you will see that it started with sideways movement, then down day, then market tried to recover and that failed, which was followed with only last two days being strong down days. Don’t expect that market will drop 2000 or 3000 points without any fight from bulls, as they will try to protect their positions in this market.

Dow Theory is still showing higher high and higher low, so trend is still intact, with 50 exponential moving average around 28200, almost paired with previous low. If those two levels are broken, look for more downside to come. On the upside, free money is coming from overseas and that can always push market higher.

Last week I posted Top40 30minutes chart that painted clear picture of rising wedge and potential targets.

Trade with trend!

Sunday Reading

Bespoke:

Global Unemployment Rates

1% Declines From a 52-Week High

Streak Snapped at 37 Trading Days

Simply amazing!

Picture of the Day: Shanghai in 1990 and 2010

Some great visuals that The Big Picture has collected:

Stocks Oil, Gold, Bonds for the Long Run?

Total Market Cycle

Market Capitalization as a % of Nominal GDP

The Media Universe

Recession Recovery by the Numbers

Trading the Odds:

January Option Expiration Week

Today’s mistake

Most of the traders and bloggers out there will show you how they make 100 or 1000 points every day, just to boost their ego. Completely opposite to that I will post my day’s trade in order to explain my mistakes: In 600 point day with clear trend I managed to finish some 80 points in red. Yes, it amazes me as well!

I missed first hour or so, as I had to go to municipality to do some work, so I was in front of screen from around 10:00.

First trade was short at 28772 around 10:20 (entries are marked with big arrows, exits with small arrows). Exit was 3 bars later at 28719 and the reason for close was red bar on high volume (stopping bar), which usually marks end of the trend. Profit 53 points

Second trade was at 28820 around 11:40 with very tight stop loss. ALSI tested previous high (from 9:50) and volume was not supporting move upwards, so it was ideal place to short. Unfortunately, I could not get full size and I had to go with my son to swimming lesson, so I had to close at 28780 for 40 points profit, but effectively it was only about 13 points, because it was only one third of the size. Ideally, this short trade should have been closed much later in the day. Easy close would be 14:00 at 28700 when we closed above 10 and 20 exponential moving average.

Later in the day I tried to go long, trying to find a bottom at 15:55 and later at 16:45 and both trades closed as losses. Loss for those two together was around 140 points, so day was closed with 80 points loss.

As I’ve analyzed chart tonight I realized that instead of trying to find bottom around 15:55, much easier and better trade was to go short at exactly the same time with very tight stop loss of around 30 points. That short could have easily gone all the way till the end of the day and it would have pocketed anything between 200 and 300 points.

So, today’s two good trades were short 28820 around 11:40 with 30 points stop loss and with close at 28700 for 120 points profit and second one was short 28700 around 15:55 with 30 points stop loss and with close for 100 points profit (to be modest). That would make you 220 points profit on the day when daily range was 610 points or 36% of daily range.

So, two lessons to learn from today’s experience:

- Don’t try to catch tops and bottoms, especially when market is up or down 500 points;

- Patiently wait for good setup, as it will happen at least once a day and can easily make your day.

Our job as a trader is to make money, not to trade. If you can make your daily target in one trade, relax and enjoy.

Trade with trend!

Top40 30minutes chart

Today market is dropping so far, it is 260 points down as of 10:00, so let’s take a look of 30 minutes J200 chart to see what is telling us.

From September 2009 nice trend developed and it was not penetrated even once. It was tested three times. As of 10:00 trend line is around 28700 or some 50 points away. It is easy to notice rising wedge with top line connecting 4-5 recent tops.

Target for wedge if trend line breaks is around 26600 (red line on chart) and that is exactly where last break out happened. Top40 was stuck between 26500/600 zone and it broke above in October, after that it tested break out point few times and continued higher.

Levels to watch on downside are 28200 and that was last major low. Bounce can come from around that level. If that is taken, then 27100 is next target.

Trade with trend!

Intraday trading part II

Over last several days I’ve got few e-mails from people asking when to exit their positions and this blog post is going to address that important issue.

I’ve tried to explain in post titled Trending or range day what one side of the medial is and how to distinguish between trending day and range bound day. Today I will take a look at daily range distribution and see what it is telling us.

First chart shows daily range distribution for ALSI from just before December 1st, 2008.

Second chart is from May 4^th, 2009, date on which, I would say, our market changed. Volatility evaporated, market changed from follow through to mean reverting and trend following systems started to struggle, while profits on some of them got halved form 2008 to 2009 and then dropped again significantly in 2010. 

In this sample, there are 431 trading days and one can see that only 23 days or 3% were with daily range above 700. Most of the days were in the range from 200-500 points.

So, why are we publishing all these numbers and charts?

I would like to couple this information with the goal that was made in post titled How to become intraday trader. Stated goal was to get 10% of the trading range in the first three months of trading. To get 10% of daily range one must make at least 40 points in a day. So, answer to readers who emailed asking about exits is a very simple one: If you enter position and it went in your favour 50 points I would recommend to close it and wait for next signal. This will be good example to practice your discipline. As we grow as intraday traders will shift this boundary and will try to start taking more points when they are available, as final goal is to trade only when there is reason to trade.

And to finish off, I would like to quote one blogger: “Success doesn’t come easy, especially in trading. But if you can focus on your game and not dream of the million dollar carrot on the horizon, I am sure you will succeed.”

Trade with trend!

Top40 end of the week chart

Second week of trading in 2011 was very nice, especially sessions on Tuesday and Wednesday. After four days of weakness market bounced nicely and on Wednesday J200 broke year to date high, making one more on Thursday. Finally, on Friday J200 showed weakness in the first part of the day, but bounced strongly towards the end of the day, with ALSI futures making fresh year to date high after cash market closed.

Currently J200 is trading above all major moving averages - 10, 20 and 50 and, so far, trend is very much intact. Close on Friday was at 29226 and that is 2167 points or 7.4% away from all time high at 31393. I’m of the firm belief that we are going to see new all time high and most probably that is going to happen sooner rather than later, as too much free money around the world is looking for home and emerging markets are favourite number 1.

Having said in mind, I just want to point that chart is showing some serious negative divergences on RSI and MACD. Negative divergences are not selling signal by itself, but triple negative (or positive) divergence could be a warning signal. One trend line is around 28500 together with 50 ema and the second one is way down around 25000. If/when those negative divergences play out market will correct very sharply and strongly. If one holds long term position, good place to close is close below 50 ema, but be ready to jump in long again quickly. Dow theory short will be close below 28194.

At the end, just want to conclude by adding that I don’t think this bull market is in any danger. For as long as interest rates in major countries are at zero or close to it, that is not going to change.

Trade with trend!