I Spy a Large Trading Opportunity–How You Can Too (Part 7)

06/24/2008 12:00 am EST

Focus: STOCKS

Timothy Morge

President, MarketGeometry.com

Price consolidates a bit and then tries to climb back above the Upper Median Line but runs into the confluence formed by the red down sloping Upper Median Line Parallel and the green down sloping Upper Median Line Parallel.

These two lines act as an upper barrier and repel price. When price heads lower and breaks below the prior swing low, making a new low for this move, we confirm that we are making lower highs and lower lows, which is a sign for a cascade lower—a formation that should eventually lead price to my profit target.

Once price makes a new low for this move, it confirms the recent test at the confluence of the two Upper Median Line Parallels as a swing high. I now expect that there will be limit sell orders at or slightly before this new swing high, so I cancel my initial stop loss order at 117 15/32 and move it three bond ticks above this new swing high, to 117 8/32. I am now playing with the market’s money, and that is always the best situation to be in!

But as the last bar on this chart closes and I cancel and replace my stop loss orders, something clicks in my mind. If you have children, you’ve probably played ‘I spy with my little eye’ many times and suddenly I spy something. Let me diagram it out for you!

More in Part 8 tomorrow…

Tim Morge
tmorge@sbcglobal.net
www.medianline.com
www.marketgeometry.com

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