Allow me to illustrate the simple application of support and resistance to a very short-term trade. First, the chart:
- As I stumbled downstairs, puppy in hand, I glanced at the ES chart and saw that it had fought its way back up to short-term resistance (see horizontal line). I figured this was a pretty safe place to short, so I sold 20 ES at 834.
- My initial stop was set to 837, but as the market wiggled down, I was able to tighten up my stop a couple of times to the point where a profit (albeit a small one) was assured.
- Now here's the important part…………as the ES cut below 820, I saw that it was approaching an area of a lot of activity over the past 24 hours. Yes, it could cut below that entire range, and if I was "committed" (ahem……..) I would have held on to the trade – um – forever, I guess. But I felt the profits would be better banked, so I closed the position at 822 for a nice profit.
- The market then proceeded to push quickly to about 835; had I been "committed" (icy glare……….) a $10k+ profit in the span of an hour would have evaporated almost instantly.
The moral: respect support and resistance; cut everything else away, and these are all that really matter.
