Trading Plan Thoughts

The bulls took a coffee break yesterday and price hesitated with an “inside” day on the daily chart of the cash S&P500. This price action indicates that Monday’s high was most likely a PRP: the end of the Level 1 Y pulse. It is also of note that the RSI failed (at least for one day) to push above the key 67 level.

I now believe the odds very low that the Level 1 Y pulse could have ended at last Thursday’s high. This means that we should still not take a countertrend (trend-reversal) position until price breaks below 847.12; the previous Level 1 X pulse low. An early warning that this will happen *may* be given by the break of the Level 2 Beta – X trendline which stands at 859.16 today.

The market has created a new TD Supply line (see chart) at 907.75. A break above this line during the session today will qualify it and point to 943.17. The current TD Demand Line now sits at about 885.08 and also would be qualified today on a drop below it. A move below 879.21 would still trigger an REI “sell” signal.

Trading Plan (draft): The trading plan provides more specific trading parameters than the trading philosophy.

Trend-Continuation Trade-Entry

Only initiate a trend-continuation trade-entry when the market has qualified a TD Line in the direction of the current Level 3 Price Pulse. Trend-continuation positions will always be thought of as one unit. The maximum number of trend-continuation positions that may be held at any given time is two. Trend-continuation units will be treated as intermediate term units for stop-loss and profit taking considerations.

Every open trade must have an open protective stop-loss order

Never add to a losing position

Profit Taking and the Intermediate-Term Unit

The protective stop-loss on the intermediate term units will be brought to no further than one tick beyond the three-day high or low once the new trade has been validated. The protective stop-loss will be trailed at the one-day high or low if the market reaches the price objective whether the trade has been validated or not. The intermediate-term unit is never exited on a price objective.

Trading Rules (draft):

Trend-Continuation Trade-Entry

Trend-continuation trades are only made on those days that a TD Line in the direction of the current Level 3 Price Pulse are broken and qualified. The initial protective stop-loss for this trade will be the previous day’s high or low. This stop-loss expires at the close of the qualified break-out day.

Based on the draft trading philosophy, plan and rules:

A long position (not to exceed 3% of the account balance) would be taken on a move above 907.75 today. The initial stop-loss would be placed at 897.34.

A short position (not to exceed 3% of the account balance) would be taken on a move below 847.12 today. All such trades are hypothetical (based on the cash S&P 500; not a tradable contract) and do not constitute advice to buy or sell any instrument.