What About Those Levels?

• Posted by Derek
• on June 28th, 2011

I recently had the pleasure of hosting Anne-Marie Baiynd for a talk with the Charlotte Market Technicians Association, and we were all treated to her fabulous insight on fibonacci in trading(David Blair wrote his take here).  I asked a few questions of her in the days after, acknowledging how “levels” have always been the weakest part of my game.

Then I went further, taking her simple “Why? When? Where?” approach to building a trading plan and comparing my own work.  It occurred to me just how much I write about the “Why?” and “When?”(and “What?” and “How Much?”, for that matter), and how little I write about the “Where?”.  It’s fairly absent in my writing, and my inattention to it explains much if not all of my poor performance of late.  At a time when I overreached on adding a strategy, some combination of ignorance & laziness crept in to blind me of the importance of “Where?”

The past couple of months have been about horizontal levels; the planning I’ve done became more about the dynamic, trending ones like moving averages and trendlines.  When environments change, planning should change with it.  Whether it’s Fibs or key highs/lows or areas of past high volume, it’s important to remember that rangebound markets don’t have soft and partial retracements; they retrace fully and quickly.  The simple act of noting key levels on both a static and dynamic basis requires little thought but can contain key information in locating better entries and exits.

In each of the past 3 weeks, we’ve at some point touched as low as 1268 on $SPX and as high as 1292.  At 1280, we’re smack in the middle of those levels and will likely touch both again this week…1268 was already done in Monday’s opening minutes.  Monday’s bounce took us right to the 61.8% retrace of the 6/22-6/23 post-Fed selloff, and backed off a little.  The 200 day MA is not a “static” number but over the course of a week doesn’t move much; that is an obvious level that will continue to be watched to see if it’s a magnet or repellent.  The real level in my planning has been 1307-08, but until that is tested it’s just a far-off number.

Thinking we can consistently profit with just the direction and context is the height of arrogance, just as blindly buying some level without regard to trend is a recipe for loss.  I’ll probably still focus my writing on stronger areas like trend and psychology, but have shifted my cheat sheet to a “Where?”, “When?”, “Why?”  format as a forced reminder to keep all three legs of the stool working together.  Fortunately, guys like @alphatrends & @gtotoy & @harmongreg & @attitrade constantly share areas of price memory they see as key.  If studying their work doesn’t serve as a reminder, there’s always a pinky swear with Kramer.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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