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Know Your Limits

July 6, 2012

Today’s chart just shows the first few hours of the cash session. Sometimes a trend can be sustained with low volatility, and this is what we see here. One of the main problems this presents relates to risk:reward ratios, as discussed in yesterday’s post.

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Daytrading Chart 6th July

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My first short entry into the downtrend was with a sell limit at the EMA. This yielded a 3.25 point profit as the market made a new low. I then put an overhead resistance line across the two swing highs, and awaited a rally to get short. The market stalled one tick below my sell limit, and then sold off to new lows without me onboard. I always enter with limit orders, and one consequence of this is that I sometimes miss great moves. I never chase these moves. Using limit orders is how professional traders establish positions, and it avoids paying the spread – those ticks can really add up. Ideally I exit on a limit as well. I’ve highlighted this area in grey.

With a revised resistance line in place from this most recent swing high, I am able to short the next pullback. The market came within a single tick of my stop-loss before for it rolled over, yielding a 2.75 point profit.

I’ve also circled the next pullback in grey. I didn’t short here, although price rallied to the resistance line and the EMA. Why? Not enough profit potential down to the lows, and the CCI isn’t overbought.

The last entry shown was a losing trade, shorting at resistance. The market did head lower again, but I got stopped out.

Click Here For Today’s Chart

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