Trader’s Narrative

While most were busy watching and trying to trade all the red on the tape today, if you were using a simple filter such as new 52 week highs, you would have seen this:

I noticed EAG where the green arrow is marked on the graph. It is a stupendiferous example of expansion and contraction. Textbook example, wouldn’t you say? It was also telling that while the market was tanking this tiny little stock almost doubled.

Notice that the fireworks didn’t happen until many others saw the same thing and piled on (volume in purple square). But before then you had a very tight contraction in price that offered a very low risk entry. Trouble was that with the lack of liquidity you would have gotten very little stock handed to you.

Over on the short side, Rio Tinto, the quintessential resource play, gapped down and tried valiantly in the morning to recover. After two up candles, it couldn’t anymore and down it went, taking the low of the morning as well as the previous two day’s low ($221). After it broke this important intra-day support line, it consolidated just under that level - offering a low entry point, as expansion was followed by contraction.

This is why I heart filters. All great traders that I know of, use them. Some even go as far as programming and designing their own proprietary ones.