I had a Twitter heckler of sorts today (I guess I should be glad that at least somebody read me).
The big focus for the financial markets today was the FOMC meeting announcement. As you would expect, market volatility generally contracts ahead of something like this. I like to go into these kinds of events with an open mind as far as market direction. A priori it’s difficult to know where a market will go after such an event. Fortunately you can often let the market tell you where it wants to go and ride a move that occurs after the event (that’s what I endeavor to do with the Trade or Fade breakout trading method).
Today’s intraday chart of the eMini S&P futures is below. This morning’s session high was 1296.00; this was a tick short of the 1296.25 high on January 19.
1296 has been a tough nut
Shortly after the FOMC announcement at 1:15 PM, eMinis rallied to make a new daily high by one tick, going to 1296.25. I “tweeted” (isn’t there a better word for that?) pointing out the double top. Shortly after that post another Twitter poster commented “U’r kidding, right?” I don’t know the responder, but looking at his posting history, he seems to be a permabull who likes ragging on people who don’t agree with him. (I realize I’m making generalizations about someone I don’t know but I thought I’d use him as a straw man to make a point or two.)
I don’t care that he doesn’t agree with me. If we all had the same opinion we wouldn’t have a market, would we? I did get a little cranky with his comment, however. First, I stated a fact – the market had made a double top. More importantly, I wasn’t pointing this out an indication that the market had topped out. I did so to point out that the double top meant that the 1296 area was important; that it could end up as a pivot point, or a reference price in Taylor Trading Technique parlance.
The other thing that came up in the exchange was the dangers involved in indiscriminately conflating discrete pieces of data into an incorrect whole. In this case, there’s a real danger in taking a longer term thesis on market direction (I’m bullish on equities) into shorter term trading (it’s always going to go up, and I’ll ignore evidence to the contrary). This kind of confirmation bias makes it difficult to make the dispassionate decisions that mark a long term successful trader.
Lastly, as I commented in Eric Radke’s blog post yesterday (read it here) I think it’s important for traders to “have their own trading mind” and be confident in it. This allows the trader to do the right thing at the right time.
For more information on trading breakouts in futures, you can get more information on my Trade or Fade advisory here. For an in depth discussion of breakout trading, get a copy of my Breakout Futures Trading Method book here.
The information contained here includes information from sources believed to be reliable and accurate, but no guarantee is made as to accuracy, nor do they purport to be complete. Opinions are subject to change without notice. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
