Thanks for the e-mails regarding the call last night. I’ll say a little more about that later in this post.

Tonight will be the last post in this series. My aim in tracking the S&P was to flesh out the way I trade the markets:

  • What is the trend of the timeframe I am trading? Continuation or change? The answers give me my strategy.
  • Where do I take a trade? That is where is the price zone where I look for…
  • ….My setup and trigger?
  • Where are my initial stops and targets to work out the Risk/Reward for the trade?

Last night on a 30-min basis the Market Profile and Market Delta would have got me into the trade around 1380 to 1382. I’d have waited for selling volume to be evident before entering the trade. The stop for last night’s entry would be above 1404 and preferable 1409 (basis cash).

But what if I were an end of day trader without access to intraday data, what would be my setup, entry and stop?

Last night would have formed a setup bar. The market reached the zone and produced a neutral to bearish bar. Generally I’d be looking for today to form a strong bar down and I’d enter near the close. My stop would be above 1400 (10% current swing above last night’s high, assuming it remains a possible 1-d swing high i.e. we will not see a higher high tonight).

I’d use the Rule of 3 and I’d be looking to exit part of the positions in the Primary Buy Zone (see Figure 1). However, it is unlikely I’d take the trade under these conditions. A bearish bar would mean about a down 30-point day with close no higher than 1/3 range above the low. So, we’d have an entry say a -20 point from yesterday’s close. Entry would thus be around 1330 with stops above 1400 and a core profit target around 1278: very poor risk reward.

So I’d pass on the trade unless I could get in on a low volume rally. In addition, tomorrow we have Non-Farm Payrolls and normally I don’t initiate positions ahead of major figures.

That’s it then for the S&P for now. I hope it’s been of some benefit.

I’d now like to address some of the less experienced readers. Don’t get too carried away with my call for the S&P.

Last night’s call was a measure of luck and skill.

  • The skill comes from assessing what the market ought to do given the circumstances and in providing for a series of responses.
  • The luck comes in because on a trade-by-trade basis, the market could have done anything. For example, it could have finished on its highs.

That’s the nature of markets; it’s a probability game. We have an edge to the extent that over a large sample size our expectancy is greater than 1; but on a trade-by-trade basis, the results are random. So every call that goes our way is part luck, part skill. The only aspect of trading over which we have any control is our entry and exit and that’s what we have to manage to succeed.By the way, the previous paragraph does not mean I don’t appreciate all the kind words that you sent. I do and I thank you.

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