Context and Trading

BarroMetrics Views: Context and Trading

One of the areas I feel is most neglected trading education is the importance of context.

There is a pattern I use in my trading, Wolfe Waves,  that I find useful in the appropriate context. We are seeing the pattern and its context in the S&P today.

Figure 1 is the e-mini futures, Sept contract, including Globex session. You’ll see that the S&P is at the Primary Buy Zone. The low 1241 (1243 day session only and 1249 basis cash) is not only the beginning of the Primary Buy Zone but also the 2011 low. If we see  acceptance below  this number I’d say the high for 2011 is in. So, the March low is an important number.

Figure 2 is a 290-minute chart of the same instrument as Figure 1. I’d expect the low to terminate somewhere on the trend line that has joined 1 & 3. I have drawn the target (1-4) line for the sake of completeness. I don’t use it that often in my own trading.

So there’s a head’s up folks. If we see acceptance below 1241, look for a watershed type decline; otherwise I’d be looking for a high above 1576 and below 1736 by Sept/Oct 2011.

bd-esu1.png

FIGURE 1 Daily S&P

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FIGURE 2 290-minute S&P

2 thoughts on “Context and Trading”

  1. Great analysis and introduction (at least to me) of Wolfe Waves. I will definitely be on the lookout for this setup.

    Regarding context, it’s what makes or breaks technical analysis. The 200 day MA has been getting a lot of press in the last few days. Is it the first test or a subsequent test? Is the MA sloping up or down. Are we approaching from oversold? Do we perhaps have momentum divergence?

    Unfortunately, the proliferation of free TA indicators leads many to use them blindly without understanding the nuances of how they operate.

  2. A little girl gets home from school and emails here grandmother, “Guess! what! I learned! today! in! school!”

    The above Wolfe Wave setup appears to be more common than I would have thought. In fact, there was one today in the ES:

    http://chart.ly/7cyxebx

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