It's always nice when Monday starts the week off with some good movement and quality trading opportunities!
It didn't take long for the initial New York Open chop to settle and for the market to provide our first trade which turned out to be an excellent runner. The initial target was 2 points but the move down was a breakout and also quite strong. Due to these factors it made sense to risk a pullback on the trade to see what the reaction was to news and if momentum would continue to the downside.
Although the general rule is not to hold a trade through news there are situations like this where the market momentum is on our side that it makes sense to take the risk of losing a few ticks. Of course, it's crucial that we were already up over 2 points on the actual release which gave us some breathing room.
Follow the rules without question, but know when to break the rules. - Ed Seykota
The quote above is paraphrased from the legendary trader Ed Seykota and it is something most experienced traders live by. While you need to have a plan for your trading with your rules and setups in place it's also important to be able to have some flexibility in order to adapt to the current market situation. In our case strong momentum and a breakdown within the greater context of the market meant holding through news and we were well rewarded.
Price made it to some old support and bounced strongly which meant that there was no automatic trade by our rules. Long were then in play after price failed to hold on the pullback and we had a strong overall move to the upside. It's not uncommon to see such shifts in overall momentum after extended moves based on news releases so we need to be ready to change our bias if the market gives us new information. As we were going against the prior move the original +2 targets were kept and filled (although it was lucky to get filled on the edge with the first long).
As a trader it's important to be able to identify these patterns in the greater market context and take advantage of them. Just take a look at this trading lesson for the 22nd. Almost the exact same pattern was in play and we were able to quickly get on the right side of the market both times.
One final long didn't work out as the market shifted again but we were able to minimize our overall risk on the trade by recognizing it. At this point I was happy with the last couple of hours and wrapped up for the day. It turns out there was another nice 2 points to be had on a short (last red arrow) but no worries on what was an excellent day overall!
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