I want to make it clear that my idea with the morning sheet is not to forecast the market, but to be prepare for it. Some when they look at this chart may say: "Ok, you´ve guessed that the market could go higher, go neutral and go bearish. It´s impossible to be wrong!!!". That is true, but I do not care to be right or wrong. I am not a fortune teller, that´s not my goal with this.
So you might ask, what I am trying to achieve with this?
My job as a trades is to be prepared for whatever happens and to make money from the opportunities the market throw at me. The more money the better, but the only problem is sometimes the market is just not good and the best thing to do is to stay out. If you avoid losing, you also make money.
I came to realize from my trades in the past that I do not trade well when the market is sideways moving very little. Market does not give me many (or any) good opportunities, so the best thing for me is to stay out. I could also try to find a different way to trade this type of market which is exactly what I am trying to work on.
Also, another way to take advantage of the scenarios is to filter the best opportunities. For example, let´s take the picture above. If the market makes a new high and holds, my expectation is for it to continue higher, testing the next level (blue line) at 166.50 and this favors trades on the long side. This is the scenario # 2 and the one I think has the most probability of happening. Again, I do not care if I´ll be right or wrong. At this point I don´t know if it will make a new high.
From my selection stock sheet, I had a plan to go Long Above Resistance (LRes) in stock XYZ and Short at a Resistance (SRes) in ZZZ and had alerts set up in my PM (or AM) preparation for both of them. I am also adding the scenario number which I think the trading idea would work the best. (i.e. 2-LRes)
The expected scenario #2 start to develop by making a new high and the alert in XYZ and ZZZ go off. XYZ start to consolidates above it´s high. ZZZ makes a lower higher and SPY is holding the new high. They are both setup nicely, but which trade should I take?
Assuming I could enter both trades in a good Risk/Reward position, the trade in XYZ has a greater chance of work, because the expected scenario in the SPY would favor the long trades. If you are not prepared and have to think too much to enter the trade, developing the possible scenarios as it goes, you may lose the good Risk/Reward entry. On the long run a few pennies could be the difference between profitable and unprofitable. Good opportunities do not last long. Could the trade fail or the new high on the SPY be a fake one? Sure it could, and for that we have stops.
Traders edge: this is to me the biggest edge you could have. When you develop scenarios, you don´t have to wait for the entire scenario to develop. If my expectation is that after making a new high, it will move to the next level (166.50), as it is making a new high I am positioning myself into a good trade. What happens if the expected scenario develops? I make more money than what I usually lose. What happens if it does not work and I get stopped out? Usually you will lose some money, but with experience, you´ll see that if the expected move doesn´t happen, usually it goes strongly in the other direction.
I hope that my explanation cover all the questions you might have. If not, let me know, so I can make it better.
Good trading.
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