What a great learning day today…
I must admit I missed everything and lost money but we can learn something from today’s market.
It just shows how difficult trading is and what kind of mind set we need to develop.
First thing first.
The market condition at the open was the following :
- We had a 2- day bear balance breakout on Friday from the day chart.
- Friday’s profile was showing short term inventory long liquidation with low volume. Weak structure.
- Short term inventory went long to short. Probably even “too short” if you look at the late move.
- Overnight inventory was short. ( not using the usual rule. I will write a post on this subject.)
- We opened inside Friday’s range.
That was the condition at the open.
My first focus was on 2 levels 48.04 and 47.75 which were the 2 distributions extreme from Friday’s profile.
We opened right at the 47.75 level and traded immediately down. I was not ready for this because I thought that we could correct the overnight inventory first. That was a mistake… here’s why :
We opened inside Friday’s range – which had a very bearish tone on Friday- and 47.75 was also the high from J period on Friday. So there was no real change from Friday’s mood at the open. That was an opportunity to sell !
Lesson 1 : Never have only 1 scenario. Be ready for multiple scenarios and let the market confirm it ! Don’t jump or be frozen by preconceived idea.
If the market would have traded higher that would have changed the odds and put pressure on Overnight and Friday’s late short traders. But it did not happen this way. Recognizing that quickly is how successful traders think.
So the market traded down until C period. Now we had Short term inventory SHORT, Overnight inventory SHORT and Day Traders inventory SHORT.
A dangerous situation unless strong hands take control of this market but we had no clue that was the situation. Pro Suite was showing the high of the day at that time ( 47.76 ) weak because it came from the overnight halfback level. Only weak hand traders monitor this level. Strong hands don’t even know what is overnight halfback !
In D we printed 4 TPOs across at the POC level which lowered the down trend continuation odds and we left a poor low at the bottom showing a potential “too short” situation. Everything was set for a short covering rally. When D could not make a new low and started trading above C high and POC level at 47.27 short covering was on its way. Also take a look at the Volume At Price chart image from Pro Suite VTI Template on the left. Most of the new day short happened in the 47.22 – 47.07 area.
The second mistake I made was trying to sell this short covering rally because of the early bear mood.
Lesson 2 : You never know where a long liquidation sell off or a short covering rally will end ! Don’t go against that.
That was even more dangerous considering the weak structure from Friday.
Panic buying took place specially in D and F periods. The market went from too short to very long at the close.
Again today was a day controlled by short term traders and inventories. I think the short term inventory is long at the close but not necessarly too long as the POC migrated higher throughout the day. Volume was very low and lower than yesterday. We are showing 2 distributions, lots of anomalies and we left a poor low. Again this is not a good structure.
Good Trading !