Teach Talk Trade Day Trading & Technical Analysis

Daytrading 12-10-07 (Monday): Occasional thoughts on scalping the market.

XTXI (Crosstex Energy Inc.): “Trading the Pipe”

In the case of XTXI, our momentum oscillator, the Chande Momentum Oscillator means very little.  But much like Little Richard, we put it on the chart because it’s so beautiful.  Our daytrading setup consists of a number of moving averages.  First and foremost, we use the T8 (maroon line) to determine trend.  We will only take daytrades in the direction of the T8.  Our second and third set of moving averages are three-day T3 averages of the highs and lows.  The T8 is represented by the fat maroon line on the chart.  The highs and the lows of the T3’s are represented by the dotted red and blue lines on the chart. 

At the number “1″ on the chart, we can see that the T8 is pointed down.  Since we only take trades in the direction of the T8, our exponential moving average,we are looking for short positions.  The rules are simple:  a. take trades in the direction of the trend b. short any opening above a downsloping T8  c. short retracements to a down sloping T8  d. the opposite applies for all long trades. 

As one can see, there are even better parameters set by bracketing price with the average highs of the T3 and the average lows of the T3.  This envelop defines most days highs and lows and allows a trader a well-defined set of numbers to place limit orders to buy and sell.

The three large red arrows below the number “one” are days when the T8 was negative and the market opened above the T8.  These are three opportunities to short the opening.  The three smaller arrows below the number “two” are opportunities to short when price retraces to the T8.  The arrows above the number “three” are three opportunities to buy XTXI on retracements to the trend (T8).  Number “four” represents an opening below the T8 and an opportunity to buy the opening. 

 There are many days when the price touches both the T3 highs and the T3 lows.  These brackets can be great boundaries when trying to extract a few dollars from XTXI on a daily basis.  Set your own rules, but trade with the trend and allow the T8 and the T3’s to guide you in and out on a daily basis.

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