Tuesday, August 26, 2008

Paying the trading costs,,,,

The S&P 500 spent so much time below value that I was concerned about the structure. I still am. It will have future ramifications as far as where the short term balance may shift. It has taken the confidence out of that level (lower 60s) since it means that the level is not as rare for the other timeframe players. There were many small attempts to break to the downside but resting bids absorbed it. It appeared that sellers did not have the conviction though (no sustained hitting the bids).

I generally don't buy on a buystop ( unless I am trading a longer timeframe) but my order for a buystop @ 65.50 (above the last probe high and above the highest trade @ offer traded) was based on the above possibility of support and the significance at the level. Most importantly, it was based on the order flow of decreased selling pressure, after the initial thrust failed to set newer lows or break the level. I did not like the risk reward though, based on my location of a buystop(thats why I don't like buy stops) vs. entry on a small pullback in the 64s. However, I was unwilling to buy it quite yet as the orderflow did not reveal any buying commitments. I wanted the buyers to commit to something that was not visible in the orderflow yet. Stop new LOD or Trin, Tick surprises.

12:06 bar brought some buyers that bailed. 12:11 bar gave me buyers remorse. I was however, not as much in pain as I would have been if I had fully sized into this position. Ah yes, the stop size needed for the trade, also determines the size too, not just the quality of the oppurtunity. Now lets look at the reward. Either POC or max extension to the high of the G period. Remember we are running out of time as well.

The last reason why I entered this trade is that there is an obscure rule in MP that when price leaves value and reenters, and if it spends more than a period inside value, there is an 80% chance that it might rotate the value range. Now this is a dangerous rule. Don't trade it at face value. However keep it in the back of your mind. Returning to value and spending time within value means to me that price still has an affinity for the value (remember, yesterdays value is what we mean). Don't bet the farm on it because retracing of the range may take the scenic route. The 80% rule does not say that it will not stop you out! However use the odds in your trading strategy.

BTW I took 5 points on this trade and that pays for weekly trading cost. Risk reward 3.25:5 pts. - ok but not a great ratio. Good opportunity but higher monetary risk.

Big small nugget here : whenever you have these kind of trades.. I mean higher risk etc. etc. Allocate it in your head towards your trading cost. Just tell yourself that its going to pay for your crapsignal vendors monthly fee or DSL. That way you dont get over greedy too. Don't forget to also ask - is the opportunity good enough for my crapsignal fee to depend on it?

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