By way of background, I picked AVY as my Spike pick last week (March 23). AVY was a strong performer relative to the S&P500 the previous week. On the weekly, the trend was still down, but AVY had closed up the past two weeks and was near the lower envelope. MACD-H showed a bullish divergence back to the November low, having ticked up the previous two weeks; Lines were essentially flat since November, but the fast line was rising, the slow line shallowing. Force Index was generally following price. Price had not yet moved up past the November low and retested it. 
On the daily, things did not appear as good over the short term. Trends of price and MACD Lines were up, but MACD-H had just ticked down from its highest level since mid-December. Force Index had dropped sharply the previous two days.On Monday March 23 the market opened higher and kept going, and my limit order wasn't filled. On Tuesday March 24 price moved sideways and down. On Wednesday March 25 I placed another buy limit order and got left behind again as price streaked up from the open. At this point I was feeling kind of helpless, and that I had to figure out a way to jump onto the powerful moves reasonably safely. I decided to try OCO bracket orders: buy limit and buy stop, each with its own protective stop.
In the course of trying to figure out how to enter these choppy conditions late Wednesday morning, I was surprised in my inexperience to find a couple of solid support and resistance lines on a 25-min chart that had developed over the period since the Monday open. These were located at 22.20, 22.50, and 23.00.
In the course of trying to figure out how to enter these choppy conditions late Wednesday morning, I was surprised in my inexperience to find a couple of solid support and resistance lines on a 25-min chart that had developed over the period since the Monday open. These were located at 22.20, 22.50, and 23.00.
Based on these support/resistance levels, and because I had not proven to be very effective in guessing the market's next direction, I placed OCO orders (buy limit/buy stop) in my own account for AVY, as noted on the above chart. After dropping to within a nickel of the limit entry price (22.60, just above 22.50 support), price rapidly increased to a point half way to the buy stop entry price (23.00) and dropped again until the order was filled at 22.60. Eight minutes later price dropped to my nice round stop at 22.10 support, touched 22.10 exactly, and took off again. It was a bonehead rookie mistake. I used an even, vulnerable stop (22.10) and got picked off. I noticed shortly after that that 22.10 happened to be the mid-day (intraday) low on Monday March 23.
On Thursday March 26 I entered aother OCO order. This time the buy stop (23.00) was hit and the order filled at 23.28, granted with 28 ticks slippage. But I was in! AVY closed this day near 24. Before the open on Friday March 27 I raised my stop from 22.43 (a little below the 22.50 line) to 22.96 (just below the 23.00 line).
On Friday March 27 AVY moved sideways-to-down all day. Price drifted downward to the 23.00 support level, touched it exactly, and drifted back upward. My stop at 22.96, just a few ticks below the 23.00 resistance/support line, saved me, just like in the textbooks!
I must admit that I was surprised at how faithfully the price movements "honored" these rather arbitrary horizontal lines. Last week's experience told me that it is essential that I look further into short-term support and resistance, and I will continue to attempt to use the concept in making short-term decisions in these unpredicable markets
Thank you Stephen for these detailed explanations. That’s what I’ve been trying to do for a while but, as I said, until now I’m not comfortable with this fractal geometry rather unpredictable on the very short term. Indeed, it seems to me that it works better on a daily and weekly basis.
ReplyDeleteStephen, I have a question. Do you wait for the first 30-45 minutes on the morning before trading even though the value has reached your entry price or do you enter the market as soon as the entry price is hit without waiting for a “stabilization” of prices?
ReplyDeleteDidier, thanks for your comments. I have entered different ways. Yesterday morning I waited to see what happened after the big initial drop and entered about an hour after the market opened, when price started moving sideways. That worked well. This morning pre-market trading was positive but seemingly not frantic, so as an experiment I placed buy limit and buy stop orders before the market opened. My stock opened high and dropped; my fill was awful (and in my inexperience inexplicable): The buy stop order was 23.75, the fill was 24.10 exactly two seconds after the market opened (07:30:02 where I live), but the high of the 25-min bar was only 24.04! Also, I estimated that the high was hit at 07:30:35, based on the 1-tick chart.
ReplyDeleteHaving said all that (and let off a little steam), I prefer to wait a little after the open to let the excesses drain off. However, we've all seen that if you snooze during an explosive upmove, you lose. So I also understand the importance of getting in early and I've been working on mentally accepting the slippage. But now I realize it's not as simple as all that, since really bizarre (to me) fills can happen. So I'm still working things out. By way of background, I only have seven trades under my belt.
In your first comment you mention that you feel that support/resistance works better on dailies and weeklies. I don't doubt that at all, and I appreciate the comment as something I will use. I just happened to stumble upon the support and resistance lines as I was studying-studying-studying the intraday chart to figure out how the heck to get into the market. Thanks again.
Hi everybody,
ReplyDeletemaybe I could give some inputs,
If didier makes decision buy/sell based on weekly & daily, you can make decision based on that, don't influenced by intraday whipsaws. Intraday is just to finest your entry/exit point.
Every timeframe chart will be look the same if there is no mark "daily" "hourly" etc. So, you can implement your skills in intraday too as you did in daily/weekly.
Hoping it will help.
Rudy
Thank you guys for your answers!
ReplyDeleteStephen,
ReplyDeleteI was reading one of the technical publications for traders (Technical Analysis of Stocks and Commodities) and I came across an article by Barbara Star in which she called Resistance "supply" and Support "demand". I had to think about that one!
Regards,
Clark