Monday, July 20, 2009

Timeframes and capital

The type of fish question eludes to an assessment of who the opponents are
and who are you swimming with. This week is a great snapshot of a price/value area
where multiple players are involved. If you chart the 3 monthly profile we are at the
top edge of profile. Such areas bring together multiple timeframes. More so then the balance areas. 1st those who are long at the these levels. And by that I mean not just the index but via different instruments or underlying stocks. Ultimately the S&P or Dow is simply an index isnt it?

I have friends, family, and my own portfolio that is long from these levels. How would these institutions behave, will they cover longs, and what about those short. And those who are long from the lows. We can have no idea until the players put their bets on. To some extent thats what volume and orderflow provides and so far it is unimpressive in the s&p index.

If we do open outside the range and trade back in range, orderflow at those levels might provide a clue - both for shorts and longs . But these trades need to there when the price hits it - expect fast rejection or lifting of offers. But the reason I brought this topic up is to highlight the perspective of timeframes.

At edges like this, I think it is a big mistake to trade just a fast chart. Simply because these are high risk and high reward areas. A lot of big fish will be involved whether they like it or not when the market attempts or rejects an important price level.
One big thing I like to look for is whether there is solid evidence of statistically higher, broad based buying. The lack thereof would result in a consolidation back into range initiated by desperate profit taking. The other significant factor is the location and size of the stop. Small stops are inherently at a big disadvantage at the extremes and those setups are better not played.

No comments: