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Thursday, December 27, 2012

Trade Based on Objectivity, Not Emotion

Today was an interesting day in the market and it was an interesting day at 

Wolf on Wall Street

 our member's site.

Last week, in planning ahead, we figured Thursday would be one of the most volatile days this week with Congress and the President coming back, with European markets open again and some conference calls and press conferences from the House and Senate not to mention Window Dressing, End of year flows and all of this on low volume!

It turns out today was volatile as we expected.

Early in the day at 9:50 a.m. we had a heads up via a 3C negative divergence in the EUR/USD currency pair that we might be seeing some downward price pressure.

"As of right now the only thing I see that looks a little suspicious is the EUR/USD, it looks like a negative intraday divergence is forming there, I'll keep an eye on it, but that would cause some downward pressure on the market."

What was really interesting was the following and it really shows how emotions are used against you and how easy it is to lose money based on emotional reactions.

As some positive divergences were forming in the market anyway, at 12:13 p.m. I posted the following,

Going to Try UVXY Short as An Example Intraday Swing Trade

The price for the example UVXY short was

Shortly after that the Dow broke $13k on the downside and volatility and the UVXY short shot up.

Dow-30 breaking $13k and the UVXY intraday short trade...

The entry of $26.95 was promptly trading above $28, so did we make an emotional decision? No, we looked at our 3C charts, objective evidence and saw no reason whatsoever to cover the short, in fact we thought it would still make money.

"I have several emails about UVXY intraday trade, yes, it's still open and will remain so for now."

Here's the edge we had that kept us in the short...
 The 3C charts in multiple timeframes were showing distribution before we started the trade, after UVXY went against us and quickly (this is a 2 min 3C chart), we confirmed there was still distribution and stuck with the trade.

As the afternoon wore on, we kept confirming more and more distribution so we stuck with the trade.

Here's what happened next...
Our short at $26.95 that shot up to $28.28 closed the day at $25.09 allowing us to pull nearly 2 points out of the trade just by being patient, not reacting emotionally and knowing what our edge was and using it.

I love the quote about playing poker and if you don't know in the first 5 minutes of the game who is going to supply the winnings, then that person is you. In other words, 
"If you don't know what your edge is, you probably don't have one."

Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

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