Measuring Your Levels

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Imagination is more important than knowledge…
Albert Einstein

We just got out of a Tradecast where one of our traders confused himself because he valued every level equally. All levels are not created equal. Before entering a trade you should ask: where can this stock go?

During our Tradecast New Trader Mike showed tape of APC where he had two levels 44 and 44.45. He treated both of them equally. Doing so caused him to miss a big move, which he originally was expecting. A resistance level from the day before during an uneventful trading day is not as important as a 5 day support level.

In this trade New Trader Mike didn’t buy 44, but he did short 44.45. That doesn’t make sense. The 44 level is the more important level. If you are an active scalp trader you can offer 44.45 and cover 44.07. But if you looking for a Trade2Hold, which is most successful in this market, then the play is long 44, add above 44.45, and do not short the 44.45 minor resistance.

Let’s say you are dating two girls. One with whom you are smitten, a 10 to you. And the other who is your summer fling. Are you going to put more energy into the summer fling or your 10?

Poor Mike got caught short a stock he wanted to be long. And worse he was not long a stock he wanted to be long. And even worse APC traded many points higher above the 44 in a most beautiful uptrend. But this was all because New Trader Mike did not value his levels properly.

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