Encouraging Market Price Action but Could It Be a Bull Trap?

One of the many issues I struggled with as a trader was chasing bullish price action.  I had somehow picked up the notion that to be successful as a trader it was necessary always to catch the perfect entry.  When I would see even the hint of bullish price action, I would leap in with both feet.  As a result, my trading account bounced around like a Yo-Yo on a string.

Of course, sometimes I would be right, and the rewards made me feel like a trading genius.  When I was wrong, which was about 50% of the time, I felt horrible as I waved goodbye my profits.  It took me years to learn my problem was one of prediction.   I would see and Hammer Candle Pattern like the one that formed yesterday on the SPY and the DIA.  I would jump in predicting the Bulls were back!  However, what I found about half the time is that I had stepped right into a Bear trap.

I suffered beating after beating ( I guess I’m a slow learner) before I realized price action is unpredictable.  That Hammer Pattern would blind me to the overall price action.  I would ignore the fact that the chart was not only still in a downtrend but obviously still under resistance.  I would never notice that the hammer formed in a consolidation, not at the bottom of a selloff as the books I had studied displayed.  The truth is I so badly wanted a move higher I would leap to conclusions well before the price had confirmed anything.

On The Calendar

On the calendar today we have Import and Export prices at 8:30 AM Eastern, a Fed speaker at 10 AM, the Petroleum Status Report at 10:30 AM, and the Treasury Budget at 2 PM.  The import/export price can at times move the market from time to time.   The big number of the day will be the Petroleum Status which will often move the market.  On the Earnings front, we have 29 companies reporting today to keep us on our toes.

Action Plan

Futures currently are suggesting a slightly bearish open as I write this, so I want to continue to be cautious.  The Hammer Candle Pattern gives me a little encouragement that the Bulls could take over.  However, I will at a minimum need to see an upside follow through breaking the downtrend before I trust the Bulls strength.  Even then I have to acknowledge there is still resistance closely above that still needs to be dealt with, before a clear path higher emerges.

Trade Wisely,

Doug