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Trading Trend Day – May 23rd

Day Trading

24/5/2019

Thursday the 23rd May (2019) turned out to be a very interesting day to trade the DAX and the Dow index. On my Telegram channel, at 06:38am, I posted the following message:

What I was seeing at that hour was more than just a guess. I will attempt to break it down in small component. I do, however, need you to accept that even though I was right this time, I may be wrong next time. It just happened to play out well this time.

REASON 1

The previous day had been a trading range day in the Dow. The day before has been a trading range too. The longer the market is in a trading range, the more I respect when the market begins to trade outside the range.
Here is the chart of the previous 2 trading days in the Dow. You should be able to see the trading range nature highlighted in the blue square.

REASON 2

During the night the Asia markets had traded lower. Nikkei was lower by nearly 0.80%, and China and Hang Seng was trading lower too. This often (but not always) suggest lower prices in European stock indices.

REASON 3

The Dow Jones index futures were already trading significantly below the trading range. You should be able to see that clearly on the chart below. The blue box is the trading range from the previous trading day, and the blue arrow is what I saw when I made the call to sell short the Dax index.


Criticism

When I made the call, several experienced traders offered counterarguments for my short position. Their reason was that the DAX had closed the day before at 12,168, so by shorting at 12,095 I was shorting something that had already fallen.
My argument is that if something is already weak, the odds favour that it will continue to stay weak and get even weaker. As there is no way of telling ahead of time, whether I am going to be right, or they are going to be right, it is somewhat of a pointless argument. Only time will tell who is right and who is wrong.

Update at 07:06am
At 07:06am I posted an update that stated that as a trader, you now had a few choices.

  1. You could take profits based on the idea that the DAX was already down close to 1%, and as such, the fall could be contained here. The argument is that most gains or falls on the day fall within the 1% category. If you didn’t expect a bad day ahead, you would have a reason for taking profits.
  2. Or you run the position and you accept that maybe you get stopped out for little or nothing, or a small loss, but you hope that the sell-off will continue.

As you can see in my Telegram post, I argued that the DAX had a good chance of going for 12,000 and lower. I based that on this chart below. My chart opinion was at the time that the lows from two days ago would be tested again. The buyers had done nothing to suggest they were in control.

YouTube
All of the trading position is captured on YouTube streaming.

It is not particularly interesting to watch because there is no audio. I am streaming my account, but I am not talking while I am streaming. There are a couple of things to notice:

1:10:25: I move stop orders and I begin to take part profit
1:15:00: I begin to sell short the positions I had just closed. I often do this. I take part profit and re-open position.

Towards the end of the video I am taking full profits. On subsequent videos from that day you will see that I open them again. You will also see I am scalping the FTSE 100 index at the open. What annoys me subsequently is that I did not keep the FTSE position.

What follows later that morning is captured here on the Telegram calls:

All this is captured here on YouTube:

I attempted to capture the essence of trading a trend-day on this short video here:

Happy Trading

Tom