This is PART FIVE of our series on accessing THE BATTLEFIELD TERRAIN (the current market conditions) before entering a trade.
PREVIOUS POST IN THIS SERIES:
PART THREE: TEMPORIZING GROUND
According to SUN TZU, one of our 5 star generals, NARROW PASSES is defined as ground that is strongly garrisoned by both sides. THE CROSSHAIRS TRADER avoids this type of market because it does not provide a profitable entry onto the battlefield. The characteristics of this market are:
1. A narrow range of movement over the course of several days, even weeks in rare cases. As we learned with PRECIPITOUS HEIGHTS there is ground that can be entered where there is a wide range of measurable movement back and forth from one point to another. With NARROW PASSES, this measurable range is absent.
2. The narrow range of movement is usually located between two narrow points such as moving averages. These moving averages may be running parallel with one another and divided by only a few points. For example, one of the stocks you trade may be between the 200 SMA (simple moving average) at 55 and the 50 SMA at 57. The stock is trading between these two moving averages for multiple days. For THE CROSSHAIRS TRADER there is simply not enough range of movement.
3. Bollinger Bands are relatively close together during this period sandwiching the price of the stock or index, unlike the ACCESSIBLE TERRAIN where the Bollinger Bands are expanding. THE CROSSHAIRS TRADER uses the Bollinger Bands as a weapon in its arsenal, along with others, to determine whether or not to enter the battlefield. When the Bollinger Bands are close together, as in this terrain, then it is best to wait for the next move when the bands begin to expand.
Trading requires a battlefield where stocks are able to move and it is only with this movement that money can be made. It is best to stand aside with NARROW PASSES and wait for the more favorable trading grounds mentioned in previous posts.
“Move only if there is a real advantage to be gained.” SUN TZU
TRADING IS WAR. PREPARE YOUR WEAPONS.