Shorting the h

Shorting the h refers to a pattern which forms on the 1 minute chart after a weak open - usually 3 consecutive lower closes followed by a shallow retracement which has a rounded form. The pattern has a distinct h look to it. I first saw this pattern in action on Anarco's blog a few months ago. I read about it again just recently, but I can't remember where.

Today we had weak banking stocks due to some worries over BAC so I decided to have a look at GS as a sympathy play. Price quickly tested yesterday's lows so I plotted my fibs from the early pivot high (A) to the early pivot low (B). Price tried to retrace but couldn't break above the 38% level and slowly moved back to the pivot low forming an h pattern.

My primary target was $70.00 from the 15 minute chart above, but I wanted to take some off if price stalled. For a while I thought it was going straight down but after the first big volume spike I was on notice that it would soon capitulate. Took a partial 150% at exit balance at the $70.00 round number.


Susan asks in reference to yesterday's NQ futures trade:

In the Nasdaq future example of Jan. 14, it opened near the PDL and then moved downward. The fib. lines are drawn from PDH-PDL. How to draw fib. lines when price opens inside the previous day range, away from PDL and then breaks the PDL and closes weak - example: V, BUCY from Jan. 15 trade.

From the 15 minute chart below we see that the 15 minute OR opens within the previous day's trading range, but closes below it. We still plot fibs. from PDH to PDL because it's the opening tick that determines fib. placement Trader-X guidelines

The first bar is really weak and almost tags the 50% fib. level. The next bar is narrow and barely retraces the OR real body. This is very bearish.

On the 1 minute chart we also see a smaller h formation.

Volatility is much lower now than we were used to in Q4 2008. So when the S&P tested the December lows, it set off a technical bounce, but I wasn't really feeling it. Volume was lame and it took me a while to react. Anyway, I decided to take a position in the NASDAQ futures when they retested the PDL.

On a technical bounce I prefer to use intraday pivots as opposed to Fibs. The pivots are wider and I'm less likely to partial out too soon. After the partial at P, I expected price to consolidate sideways until it came back to the trendline, but it just kept chopping higher.