I was anticipating a pullback in the US Stock Market this week. I had seen some weakness in the market as described in this post (click to read), but that did not materialize. Instead, the market pushed up and drove to a new swing high.
Game Plan & Routine
Coming into the market’s US morning session yesterday, I was looking for a short opportunity. My game plan was to short against the 1425 level, looking for an upthrust. Part of my routine is to always assess what occurred in the Asian and early European sessions of the S&P e-minis.
Listening to the Market
Here is what I saw just before the US open:
The market did not react much from Monday’s high. In fact it retested Monday afternoon’s low at A. It springs from there with a very good response, pushing up and through yesterday’s high. That’s not bearish behavior. I also see that the market had pushed up higher to the 1424.75 — a level that I had been thinking would be a good location to short. But not now. The market was holding gains from the spring and working to mop up residual selling at that level. The Weis Wave volume showed no supply in that area. Given the obvious bullishness, my game plan had to change.
The market then pushes above 1424.75 just after the US open, holds that level and tests it on the 3,000 tick chart. Note the very low Weis Wave volume on the test at C offering a clear long as the ES starts to rally. Strong buying enters the market (see volume on the Weis Wave at D). Other long opportunities were offered on pullbacks.
We see some climactic activity at the highs of the day, and then a large slug of downside volume enters the market, setting up a short on the weak pullback for a test of 1424.75.
Being Mentally Flexible
A good tennis player always has a game plan when stepping onto the court to play a match. If the match is proceeding according to plan, then the player sticks with the game plan through the end of the match. However, if the plan isn’t working or the opponent begins to dominate the early games, the smart player abandons the game plan and goes to “Plan B.” Traders, too, need to be flexible in their thinking and open-minded when it comes to the markets. Having a plan is fundamental. Being able to see what the market is telling us and being able to accept that we are wrong in our assumptions when it is telling us that we are wrong is also fundamental to good trading. It allows us to change our game plan and go to “Plan B,” and not get run over by the market because we come into the trading session with too strong a bias. So the moral of this story is this: Definitely have a game plan, but hold it lightly.
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