This is PART THREE of our series on accessing THE BATTLEFIELD TERRAIN (the current market conditions) before entering a trade.
PREVIOUS POSTS IN THIS SERIES:
According to SUN TZU, one of our 5 star generals, TEMPORIZING GROUND is defined as ground where you are to wait for the enemy to make the first move, thereby revealing its next potential direction. THE CROSSHAIRS TRADER interprets this as a market characterized by large range bound or sideways movement from one point to another over a designated period of time (most often on a DAILY chart). The following rules apply when trading TEMPORIZING GROUND:
1. Look for obvious points of support and resistance where buyers stepped in to move the stock back up and where sellers stepped in to drive the price back down. Once those two points are established there is a high probability that the points will be held again in the future.
2. This range bound movement-also known as channeling-will eventually break but there is usually 2-3 good trades before that happens. There is no need to be greedy because the break can usually lead to a strong move in a new direction and you do not want to be caught on the wrong side.
3. The range bound movement usually occurs at the end of a large move as the bulls and the bears fight over the direction of the next move. The range can revolve around past gap support or gap resistance, moves from above to below major moving averages such as the 50 or 21 MA (also known as 50 or 21 tanks), or even trade between round numbers such as 50 to 55.
This is where the war on the battlefield can really be seen and calculated as there is noticeable indecision on the part of traders to move beyond one point or the other, thus range bound between two points. THE CROSSHAIRS TRADER calculates the two points and enters the battlefield when one point fails to be breached, thus leading to a likely move to the opposite point, careful to take profits before the next point is reached.
TRADING IS WAR. PREPARE YOUR WEAPONS.
