Yesterday I wrote that we could see a major breakout opportunity in the Dow Jones Industrial Average today – and we were rewarded with a beautiful 268 point move! Since I gave you my analysis for forecasting today’s breakout, I wanted to follow that up with how I traded the setup, essentially giving you the anatomy of today’s winning trade.
1. The Entry
In yesterday’s post (3 Signs the Dow is Ready for a Breakout) I mentioned that I wanted to see the Dow get a confirmed breakout through either 10,200 or 10,100 in the first 15 minutes of the day.
More precisely, I want to see an opening print that occurs beyond the prior day’s price range. When price opens beyond the prior day’s range, this is a sign that sentiment has changed overnight and market participants are actively seeking new value.
If price does indeed open beyond the prior day’s range, I then want to see the close of the first 15-minute candle confirm direction. In today’s case, since the breakout was to the downside, I wanted the first 15-minute bar to close negatively – preferrably with a large, bearish candlestick.
If all of these criteria pass, I will then enter the market at the open of the second 15-minute bar, which gave me an entry of 9,913.
2. Trade Management
Normally, I use a 15-minute chart to play this setup because I want to stay in the trade as long as possible, since this type of session can usually trend throughout the day.
Since this type of day tends to trend nicely, I will use stops that are more lenient than normal. My fixed loss stop is usually placed above the current high of the day, while my trailing profit stop usually allows a 1.5 ATR cushion.
In certain circumstances (like today), I will include a Fixed Profit Stop if there is a significant area of support or resistance that could hinder the market’s ability to trend.
Today, I placed the profit target at 9,775, since this was just above the critical support level of 9,750.
3. Patience
My profit target was nearly reached within 45 minutes of my entry, but price decided to consolidate above my profit target for hours and hours.
As I mentioned yesterday, I am a firm believer in planning the trade, and trading the plan.
Since my plan was to play the move to 9,775, while letting my trailing stop do its thing, I sat on my hands. Patiently.
Hours later, my profit target was finally reached, giving me a beautiful 138 point gain, which amounts to $690 per contract traded.
Isn’t it great when your plan comes to fruition?
I live for this day, which only happens a few times per month. But play this day correctly, and you could do very well at trading.
By the way, remember yesterday’s Inside Day relationship in the daily chart of the $DJI? Check out the HUGE bar that occurred as a result of this setup! Amazing!
Were you able to catch a piece of today’s action? I want to know about it! Drop me a line in the comments below!
Cheers!
Frank Ochoa
PivotBoss.com
Follow Frank on Twitter: http://twitter.com/PivotBoss
Good Morning Frank,
I’m reading your book and I have a question about the way that you calculate your Trailing Stop at 1.5 ATR.
The Average of your ATR is calculate on a many periods ?
For a Short-selling, on a 15min chart, it’s the Lowest price + 1.5ATR ?
I’m french, sorry if my english is not perfect.
Best Regards
Pierre