Daytrading Tips
Nasdaq 100

Out of Sight, Out of Mind
By Ralph Russell

One reason traders have difficulty in trading is the assembly, or perhaps we should say presentation, of the information required to make trading decisions.

We will use my own poor performance for the first three weeks of January 2000 as an example. We have discussed it before and I readily admit that in my opinion a Bear Market does not end in a few weeks or a very few short months. I again want to state that I have a decidedly bearish viewpoint for reasons we have previously discussed including profits we made on the downside move of the market in late 2000.

Each evening the days trading is over. We have written and submitted to The Bulletin our comments for the next trading day. I also write a simple paper that includes other indexes commentary from my perspective.

This update for the next day lists bearish and bullish conditions by outlining price levels where I think the change can take place. They are specific. For example:

"For January 19, 2001 DECEMBER Nasdaq 100 Futures: We are somewhat bullish above 2611 and truly bullish above 2645 and 2670. We closed in a very bullish mood today!

"We are somewhat bearish below 2645 and truly bearish below 2611 and 2586."

Is this simple statement written in a language that I don't understand? Is it I that wrote this information after inputting the necessary data in my computer? What is so difficult for me to understand?

I came to the conclusion that I and many, if not all my subscribers, are ignoring this simple statement when the market opens and we go into the trading day, oblivious to a very important piece of information. Another example:

"For January 18, 2001 DECEMBER Nasdaq 100 Futures: We are somewhat bullish above 2597 and truly bullish above 2620 and 2536.

"We are somewhat bearish below 2620 and truly bearish below 2597 and 2581. We closed in a somewhat bearish mood today."

Same thing. The above statement is very simple. We are bullish above 2620 and 2536. When I look at that day's movement on the 18th, I find that we were above 2620 before 11:00, tested it exactly in a retracement right around noon, and then broke above 2636. On the second time above we went on to 2691, and a bit higher, as that level was very important. (All times are Eastern time).

There was an opportunity on the 18th to take a trade from say 2641 to 2690 or thereabouts making about 50 points per contract in gross profits, yet I believe I lost on this day, January 18th, 2001!

Another example:

"For January 17, 2001 DECEMBER Nasdaq 100 Futures: We are somewhat bullish above 2482 and truly bullish above 2506 and 2522. We closed in a somewhat bullish mood today.

"We are somewhat bearish below 2506 and truly bearish below 2482 and 2466."

On the 17th we opened at 2616! Is that bullish or what? Because of the big gap the market churns as traders are stopped out, cover shorts, or new longs enter. The market then usually sells off because of the size of the huge gap, unless there is a substantial happening that caused the gap.

I conclude that we must have these numbers in front of us if we are to survive. We cannot go through the trading day without their presence in front of us, so they do not leave our sight.

My son states that he tapes my levels on his monitor, so he will not forget them during the day. Does it help him? I'll have to ask him, but I believe it would help me.

In my own case, I have created code for TradeStation that plots the four (4) levels on the screen with appropriate colors to remind us of bullish or bearish numbers. I have done this now as I finally realized this information was out of sight, out of mind, as it is said!

Is this the "Holy Grail?" I do not think so. If you look at charts that have these lines plotted, you'll see and understand how the market uses them and how the charts respond to them.

Some days we are completely above or below the four lines. You will note that in most of these cases, should you test this out, we have a tendency to go the way of the indications.

In some cases, once we stretch the range, we sometimes then begin to retrace toward the level of the numbers. In some cases, we have an announcement such as the Fed rate cut on the 3rd of January that makes this and other tools next to useless the next day. This is due to the exaggerated range caused by the announcement.

In other cases, after a volatility decline, and a corresponding decline in range, we may get a day that chomps all over these four levels without regard. We know that volatility has picked up!

As I stated, this is not the Holy Grail but it will add something to our decision process during the day of trading. I believe we can go forward from here, content in the fact that if we use this information, some days will actually reveal their personality to us before the fact.

Copyright Ralph Russell 2001