The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
Exploiting Price Data Variations in Everyday Trading (Part 3)
10/08/2008 9:57 am EST
Price finally met the Upper Median Line and took us out above 105 a barrel and we obviously made a great deal of money per contract on this trade.
But there’s a problem: While this trade unfolded on the charting package we were using exactly as you see on this chart, if you look carefully before price turned higher, I marked a wide range bar with the term “Incorrect Bar High.” In reality, the high of this bar was nowhere near as high as initially reported by the exchange. In fact, the high of this bar was actually about three dollars per barrel lower than it was initially reported. It’s difficult to know what caused the initial tick to be reported that high: It may have been a glitch at the exchange, it may have been a glitch at the data server farm at the firm we get our data from. But in any case, it is a phantom high—it never traded anywhere near that high! Our charting programs generally go back and correct small tick errors, but this error was so far out of the range that the normal tick filtering mechanism in our charting program didn’t flag and replace it. It stayed at that high level.
Yet we made our money using that phantom high as one of our pivots. This leads me to point out that you can’t spend your day worrying about the validity of each tick as they unfold—you have to trade what you see and trust you are seeing a representative picture of the market.
How did I find this “phantom tick?” I regularly do a type of homework on two of my charting platforms after the market closes. They have the ability to replay price action from a number of days at thirty times the speed that price actually happens in “real time” during the day, so I can practice looking for set ups in “sped up” time over and over in a number of markets whenever I wish. I find this tool very valuable and am always surprised that more traders don’t use this tool to practice after the markets close.
More tomorrow in Part 4.
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