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But remember folks, I do not intend this to be an advisory service. My aim is to share my process of thought. I hope that the blog will assist you in acquiring and adopting a probability mindset and a business framework to trade.
Speaking of the business of trading, let’s talk a little about managing ‘Thursday’s trade’.
If I were a 5-d swing trader or less, and I had gone long on Thursday’s 5-day Spring (see Nature of Trends) Change in Trend pattern, Friday’s bar was one that would have rattled my cage. The bar was a bearish conviction bar with normal range and volume. This is not the kind of bar I want to see after a Spring.
The rational of the pattern is this: after a prolonged selling bout, there is one last attempt to push the markets lower. When that fails, we find only exhausted sellers left. This results in strong buying coming in; the upmove is aided by weak shorts tossing in the towel. For this reason. any correction immediately after the move up ought to be on lower than normal volume and/or lower than normal range.
The normal range and volume on Friday suggests the sellers have something in reserve. One possible result of this observation: we may end up seeing 3 Drives to a Low rather than a Spring Change in Trend.
If I were a 5-d trader and long on Thursday, I’d be out of part of my positions (around 1/3 to 1/2) by end of trading Friday or the latest some time in today’s night session. By reducing the position when the trade does not look quite right, I am acting in accordance with the perceived probabilities of the trade.