One axiom that has stuck with me throughout my career is the one used when traders are on a losing streak and they refer to engaging the market as “picking daisies in a minefield.” This saying references the notion that when the market looks very good, this is usually when it blows up. This is not limited to going long; shorts also find huge reversals to the upside just when the market looks as though it’s ready to fall off the abyss. We see this time and again as the markets are full of traps that the unsuspecting novice trader is prone to falling prey to.
One of these traps is the idea that when prices trade above or below prominent price points, the particular investment vehicle is bullish or bearish. These price points can be a variety of technical levels. Some are what are commonly referred to as support or resistance. Others can be a prior day’s high or low (pivots). Also, the overnight peaks and troughs (known as the Globex) are seen in this fashion as well.
In the two charts below you can… Continue Reading
