Tuesday, November 15, 2011

XLF Comparative Study

One of the most difficult dynamics with fast, volatile and headline driven markets, is estimating the time frame of the next turn. Daytraders will inevitably enjoy the intraday volatility. However, if you are looking for a trade with a little more meat on it - it pays to be patient to wait for the top or bottom of the respective range. While it can be splendidly profitable when you find yourself on the right side of the tracks, the window of opportunity is actually quite narrow - when balanced with each trades risk profile. Further complicating things is the often found - fake-out/shake-out or throw-over move you can find at the bottom or top of the range. 

Lately, it's even more difficult (for those counting we are now at the third degree of difficulty) to find the pulse of the next turn, because the market has been undulating in what I perceive to be the doldrums before its next move. You will often find that the market will trade sideways with diminishing participation before it makes its next move. This makes natural sense - as it works off of traders frustrations with determining the primary trend. 

Here is another analog of the XLF that I've been following. You will notice that I have adopted the comparative structure - as the range has extended and narrowed. I believe the outcomes will all be the same (lower), but the market has chosen a more difficult path to profile.