Sep 21, 2014
Did you see how S&P500 dropped from high levels on Friday – just as I had informed you before the opening bell- and closed in the negative?
Of course you did! That’s why all of you have been camping on this site through the weekend 🙂
What was I doing? Oh, just marching around with a band following me and then going to the town hall and trying to set up a statue of myself like Rocky’s with a golden plate declaring “I predicted the down fall of S&P 500!”
Unfortunately, all that was in my day dream 🙂
Here is something more for you to dream about till global markets start trading on Monday.
We might see a lower range or a lower closing in stock markets in the opening session.
Lower range means, markets may climb down a notch from where they traded on Friday last.
Lower closing means, markets may close below their closing levels of last session, that is, in the negative.
Here is why-
All major index in U.S., European and Indian markets- traded in a similar fashion on the last trading day of this past week; going high and then closing much lower than those high levels, thus making a “top hammer” candlestick which usually signals a lower trade in coming session.
Some of these indexes, like CAC40 (France) and Russell 2000 (U.S.) made a big negative candlestick, some like Dow Jones barely survived this fate by closing with a few points’ gain, and some like S&P 500 and BSE Sensex (India) closed in the red at the top of their current range.
This kind of trading pattern indicates selling pressure at current levels. If markets jump high, more people start offloading their positions and taking their money off the table.
Asian markets traded on local cues and made different signals. Nikkei surged out of its range, a positive signal. ASX 200 (Australia) made two positive candlestick after a long, continuous fall, so it will either become range bound at current level or revert to its previous bearish trend.
On the first trading day of next week, we’ll have to watch out for-
1) was the negative signal in last session a breather in an uptrend?
2) are world markets going to see more profit booking?
Please note, I am not saying a “lower trend” or “bearish trend”. A new range was formed in recent few sessions as global markets rallied forward. Till markets reach- and breach- the lower levels of this range, we can only expect a range bound pattern with some profit booking coming in at high levels, as we saw on Friday.
Immediate levels of this current range will be Thursday’s high and low levels in respective markets. Keep an eye on those levels for daily trend. For choosing the intra day trading range; watch pivot point of your local index, if it trades below that point selling will dominate that market, if the index survives and trades above its pivot point then positive trades will be better idea for the day.
More about intra day trading when global markets open in Asia in about 20 hours from now.
Till then, prepare your trading strategy by making written notes about these points-
1) What will you do if markets go up? Or, what will you do if markets go down?
2) If markets go up, at what level you will enter your trades?
3) How many lots you will trade? (Keep it low, stick to the numbers).
4) What will be your profit booking level? (Please keep it small, nobody becomes Warren Buffett in a day in markets!)
5) What will be your stop loss level?
6) How much capital you’ll use to trade? (Please keep a strict lid on this amount! This must NOT increase till you make a profit. And even if you do, keep the profit in your pocket and do NOT throw it back in markets! Markets hate to let go of any profit and will snatch it back in the first instant. In other words, profits will go to your head, you’ll make rash trading decisions and lose whatever came your way 🙂 )
6) Prepare similar strategy for negative markets.
7) Check the chart of index/ stock you intend to trade. Is it showing bounce back at support level? Is it showing turning down from resistance levels? In next session, it might repeat the behavior so be ready to trade accordingly near support or resistance levels.
That is enough homework for the weekend 🙂
Enjoy the weekend, see you soon in the global trading ring.
P.S. “Livechart.co.uk” (U.K.) has very graciously allowed us to use any chart from their site to illustrate markets to our readers. We are most grateful for their help. They have also suggested that our readers can use their pivot calculator for any stock, indexes they trade in. You can check that calculator from our page “Day Trading by Pivot” :