I've mentioned before that I like to have several reasons to exit a trade. I also like to have several reasons to enter a trade. When I see a setup taking form, I try to gather evidence that the overall market is going to trend in the direction of the trade. Tuesday was nice because there was no question I wanted to be short after the second day in a row of the S&P bouncing off of the 50 day MA and the tepid reaction in the US to the Frannie bailout. In the middle of the day, XLF was setting up an inverted cup and handle and the QQQQs looked to be forming a short term double top. I also look at similar stocks in the same sector. I liked how DRYS didn't bounce off it's morning low as much as stocks in related sectors like POT, showing relative weakness. You can also see how little volume there is in the bear flag, and that the volume is declining. I try to put the odds in my favor as much as possible. This also gives you more confidence to stay with the trade. I exited this trade as the Nasdaq was hitting the previous day's low, DRYS was nearing 50 (strong support), the dojis were showing high volume (sign of covering?), and I was starting to see green on the tape. It's not every day I nail the exit, so I was happy with this 4R trade.
I've mentioned before that I like to have several reasons to exit a trade. I also like to have several reasons to enter a trade. When I see a setup taking form, I try to gather evidence that the overall market is going to trend in the direction of the trade. Tuesday was nice because there was no question I wanted to be short after the second day in a row of the S&P bouncing off of the 50 day MA and the tepid reaction in the US to the Frannie bailout. In the middle of the day, XLF was setting up an inverted cup and handle and the QQQQs looked to be forming a short term double top. I also look at similar stocks in the same sector. I liked how DRYS didn't bounce off it's morning low as much as stocks in related sectors like POT, showing relative weakness. You can also see how little volume there is in the bear flag, and that the volume is declining. I try to put the odds in my favor as much as possible. This also gives you more confidence to stay with the trade. I exited this trade as the Nasdaq was hitting the previous day's low, DRYS was nearing 50 (strong support), the dojis were showing high volume (sign of covering?), and I was starting to see green on the tape. It's not every day I nail the exit, so I was happy with this 4R trade.
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