For all intents and purposes, this is looking like the final heavy volume day of the year for these stock indexes. We had our quadruple witching day, with not too much fireworks in reality. Traders tried to smack the indexes lower, with DJH re-testing the 10200 level, which is now a one month low. Its the 7th time we’ve tested 10200 in the last six weeks of trading. Very technical, as the computer worms searched for sell stops, but were unable to find them. DJH snapped back 70 ticks from its lows in the face of the shorts through the afternoon to settle just one tick lower at 10271. Almost a bullish hook reversal, but still a strong close. SPH posted an early high at 10341, for a 140 tick range. You decide for yourself if you think that was a good trading range. I’d say no.

SPH, however, was able to give us a good bullish hook reversal. Again, that is when the market makes new lows for the day, but then snaps back punishing the shorts and settling higher on the day. SPH did exactly that today. SPH posted an early morning high at 109880, fell 10 handles to its low at 108880, then snapped the necks of the weak shorts in the afternoon rally back to settle at 1097.70.

SPH looks poised to go for the recent 9-month highs from just 10 sessions ago. More than likely that’s the action we’ll see next week. Sideways to higher trade on thin volume. In other words a typical end of year holiday market. We’ll have some business early, and some business on the close. The rest of the time, it will be as sparse as Charlie Brown’s Christmas Tree.

ON a trading strategy note, today we had several examples of the significance of the mid-point of the trading range in a couple different markets. Its also interesting to see how that little bit of knowledge can cause havoc for a trader.

Half way back for the SPH move today was 1093.80. Traders who stepped in and sold that level, looking for a re-break down to the lows were not rewarded. Instead, they had to settle for a 3 handle loss as we settled at 109770 on the day. That’s a classic case of having the right idea, (the fact that we’d come halfway back to the middle of the range) and then being rewarded with your cleverness by getting stopped out as it extends the move further.

FYI, The same thing happened to day in March wheat. The wheat came back and extended higher, instead of pausing and re-breaking to follow through with the morning’s bearish tone. On the flipside, however, in Jan beans, such a strategy was rewarded, as SF rallied to 1017 through the afternoon, and then fell apart down to the 1010 level during the afternoon sell beans/buy wheat extravaganza.

Just a classic case of how, no matter your reason for initiating a trade, you had better be prepared to take your loss if you are wrong. I can not stress that enough. There are days when I wish I had had that tattooed on the backs of my hands. Because if you forget that rule, you might as well find a new line of work. Ignore that rule enough and eventually you will suffer severe psychological and monetary trauma. 🙂

I’d like to take this chance to thank you for reading this blog. I hope you are learning something of value. I hope you will benefit from reading this and taking heed of my opinions. Just remember, the number one thing you must have to be successful trading, is a plan to exit losing trades. The winners will take care of themselves. You must kill your losses repeatedly to have a chance at consistent trading profits.

Have a great weekend.