Friday, February 26, 2010

Midday Briefing for February 26th: Catching Day Structure


If I had to identify one key skill that intraday traders most need to learn, high up on my list would be the ability to recognize day structure as early in the day as possible. This is because the trading strategies that work well in trending markets (going with strength or weakness) are quite different from what works in range markets.

The ability of the NASDAQ 100 Index to hold its lows around 9 AM CT was a good initial clue that we were in a range environment, not a trending one. Another piece of evidence is that, despite early weakness, we could never get declining stocks to outnumber advancers by more than 1000 issues on the NYSE.

Further confirmation of range trade came with the sharply waning volume as the day progressed (above) and the mixed performance of stock sectors, with financial shares showing relative strength and consumer issues lagging from the open.

A great exercise is to call out the day structure as early as possible and keep a record of the accuracy of the calls. Much of knowing how to trade is knowing the kind of market you're in.

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3 comments:

Curtis said...

Yep, got a feeling we are creating a "shelf" from which the market will fall. This is, also, an inner range.

Today, the price action was more range like indicating fading was appropriate but related sectors were firing like OIL and Global Dow. This made it difficult to justify holding short as the market moved against my position.

Currently positioning short for next week.

DDeFina said...

I sure think we should go south too but the market is overly optimistic still. On the YM I shorted the bounces off the descending trend line started on 02/19 and long off the 20 period sma with 10 minute bars with some success today, basically playing a channel. My first short, before knowing what kind of day it was, captured 75 points before retracing fully to break-even (swung for the fence and lost).

Flowtastical said...

Doc,

If the MA on the cumulative tick is is above the 0 and holding and the XL_ etfs are are positive I lean long. If its the opposite, I lean short. Trying to keep it simple. Thoughts?