Thursday, November 13, 2008

Drawing Trendlines - NQ Futures Trades

Last night we said, "barring a miracle, tomorrow we go lower". I waited all morning for the futures to break down and it didn't happen until lunch hour and by the end of lunch, it was all over. The so called experts on CNBC have been warning of a deep intraday sell off to shake out all the weak hands, so I was expecting a bigger drubbing than this. Anyway, I shorted a 3 PP base at the lows of the morning. Took a partial to lock some in and folded shortly after on a huge capitulation spike. I thought we would move back to the trendline and setup a second wave, but instead we tested the downsloping trendline, retraced and broke through.

I went long on the retest and drew in the black trendline. Price moved above the original BO point, retested and made a new high. In the process, it carved out a shooting star, and I immediately sold, thinking H&S top. The green line segment is the neckline and the red line segment was meant to be the shoulder line. But the shoulder didn't break and prices printed new highs. At that point you have to draw a new trendline for accuracy. A trendline must touch a minor low that generates a higher high. So the black trendline is replaced by the blue trendline.

I didn't want to chase, so I waited for the next pullback to the trendline. As prices kept going higher, I grew increasingly impatient, but it really doesn't pay to chase and most of us traders learned this the hard way. Prices tested the trendline and set up a solid little base to go long again.


john said...

Very nice reading of a one minute chart, but do you think that candle patterns (e.g. that shooting star) are worthwhile on a one minute chart?


Jamie said...

Thanks John,

According to Edwards and Magee, 20% of H&S tops fail. But the shooting star immediately following a swing high on a 1 minute chart such as this, almost always results in a sizable pullback. If I wait to see if the pattern will succeed, I'll end up giving back too much profit. Yesterday's late entry meant that I was predisposed to exit at the first hint of trouble.