These last few weeks have been as risky as any I have ever seen for momentum trading. The NASDAQ has been suggesting this environment via large ranges, big overnight gaps, and harsh periods of selling. Through all the difficult market conditions for stocks, you can still see a clear auction taking place in the futures. The reason for this the natural forces of a marketplace. I strongly recommend anyone who speculates establish a firm grasp of auction theory before applying their own layers of technical analysis, risk management, statistical arbitrage, or any other strategy you prefer.
The opening swing is an important piece of the auction. It sets the initial range which buyers and sellers can use as reference points for their buying or selling campaign. I have a rule that says I cannot take any trades until at least one of the opening swing levels has been established. It does not take long, but it gives you the first bit of fresh intraday data to measure your trade against.
Thursday morning we printed an opening swing inside of an opening swing from earlier in the week. I saw this same occurrence last week here http://ibankcoin.com/raul3/files/2014/03/NQ_OS_03262014.jpg
I affectionately refer to this tight buildup of pressure as The Doppelgänger for reasons outside trading. I was in literally the strangest meeting of my entire life when this all went down Thursday. I returned to my desk and found my book tossed into a massive inferno. But there was really no word more capable of describing the condition. Therefore you may see me reference The Doppelgänger going forward. And it will be interesting to see if it continues to play out because it represented a huge opportunity the two times we have seen it. Riding the trend that explodes away from it offered 3 trades with tons of meat.
Without further adieu, here are this week’s opening swings and my observations of the opportunities they create as well as the risks associated with said opportunities:
MONDAY:
TUESDAY:
WEDNESDAY:
THURSDAY:
FRIDAY:
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