Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
The Day I Watched Several Traders Implode (Part 3)
02/06/2008 12:00 am EST
About an hour later, there was a knock on the door again and to my surprise it was the six traders from down the hall, with a new trade plan and chart in their hands. Here’s the chart they brought with them this time:
They felt that price had fallen 17 S&P points and had just left ‘near double bottoms’. Their trading plan was the same: they wanted to buy a re-test of the blue up sloping Lower Median Line Parallel and put their initial stop loss below the low of the current test bar. They told me, “surely this thing has to stop somewhere! It’s down 17 big figures!”
I pointed out the poor separation and also that price had so far failed to climb above one single swing high. To me, this market was showing no sign of a bottom. I didn’t have a high probability trader entry to get short, but I had no interest in being long this market—not until price gave me a clear sign that buyers had taken control of the market. I urged them to ‘buy another bar’, which meant wait for another bar to unfold before making a decision on entering orders. But as they left, I could tell they were likely to walk into their trading room and enter limit orders to get long.
Let’s see what the next bar brought:
You can see that once again, the six traders were filled on their limit buy order and stopped out on the same bar. And price was showing no sign of slowing down.
|More in Part 4 tomorrow||Part 1 | Part 2 | Part 4 | Part 5|
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