Seeing Through the Eyes of a Professional Trader (Part 3)

12/10/2008 10:05 am EST

Focus: STRATEGIES

Timothy Morge

President, MarketGeometry.com

Once the stop loss buying dries up, price spikes lower. Price trades low enough that the majority of the long positions get stopped out for a sizeable loss. But this time, price doesn’t trade below the prior swing low, so it never triggers the new stop entry sell orders. Most traders that were long were stopped out of their long positions, but probably didn’t go short on this run to the down side. Most traders are now flat.

chart

Once again, price trades higher and makes a new high, triggering a new round of stop entry buying from the break out traders.  As soon as all the stop loss buying pressure to the up side stops, price turns lower. It may not yet have traded low enough to trigger stop loss sell orders on the new long positions, but once again, it’s been a very difficult ride.

chart

After a bumpy ride, price is finally making new highs and seems to be holding onto its gains. It looks like the break out traders may have finally “caught a ride!”

I can’t imagine the emotional strength someone trading that style must possess, not to mention the account size! But I know lots of traders that tout break out trading. And I watch the market make these same formations over and over again. If you’ve ever seen them yourself and wondered what’s making the market behave in this fashion, I hope I just gave you a small insight into a different trading style.

More in Part 4 tomorrow…

I wish you all good trading!

Best,

Timothy Morge

timmorge@gmail.com
www.medianline.com
www.marketgeometry.com

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