Walk Down the Hallway Until the Door Opens (Part 2)
09/03/2008 12:00 am EST
Let’s see how the market played out from yesterday’s Tip.
Looking at the chart, you can see that any of the three turned out to be places you could have sold—all three even gave you my favorite high probability entry, the ‘test and –re-test’. There would have been nothing wrong with getting short at any of the three Energy Points and then hiding your stop loss orders above prior swing highs.
But let me point something out you may not consider: The three Energy Points were nearly horizontally aligned. With the Fed announcement coming out just after 1 pm CST, wouldn’t it be better to recognize that Energy Points do act as price attractors? Can you guess what time the last Energy Point came in at on the chart?
That’s right! Price was going to intersect with the final Energy Point right at the release of the Fed’s announcement. Once you’ve seen this ‘horizontal placement’ of Energy Points on a news day—I call it a “hallway’—you may consider that price will just be dragged horizontally throughout the day until the news release is at hand, especially if the timing of the news release coincides with an Energy Point. Then simply watch price at the Energy Point that coincides with the news release and watch for a high probability trade entry set up.
In this case, price tested the final Energy Point to the up side, failed and closed below the Energy Point with great down side separation. This allowed me to sell a re-test of the down sloping red Upper Median Line, with a tight initial stop loss above the prior bar’s high. Though I may have missed a few ticks by not getting short at the first Energy Point in early morning session, I didn’t have my capital exposed all day on a news day while price traded in a tight range. And when I did finally enter, price quickly moved away from my entry area, giving me near instant gratification and the ability to ‘box in’ profits as price plunged.
Did the chart and the lines ‘know’ the Fed was speaking later in the afternoon? Of course not! But after you’ve seen these types of tools work over and over, you begin to wonder if most everything is reflected in price and in the charts, if you have the right tools.
I wish you good trading.