Trading Futures With Technical Analysis? Here Is A Classic Setup
For those of you who are technical traders, especially Futures traders, here is a classic setup designed to lure the unsuspecting trader into buying stocks, options and futures, while all the while it was setup to go down. How many people lost their shirts on this setup.
It is the week of June 27th, 2011. Right before the 4th of July 3 day weekend. The Dow has just come down to a mini-low at about 12,000. For the last couple of weeks, virtually every day has been a down day. July 4th weekend happens and for the next few days after the long weekend, the Market roars back. From being at just 12,000, it comes back up 700 points. Brokerages and news talk shows are raving about the run up. How fast the Market put back on 700 points. Happy days are here again. The word on CNBC -- Buy Buy Buy.
From July 7th's high at 12,719, the Market dips just a little and by the 18th of July, after the big 3 way 4th of July, support our country is over, the Market is now at 12,385. But not to fear. The Market roars back and by July 21st, the Market is back to 12,724.
For any smart technical analyst, this is a huge trigger. This was the Market's double top. Wikipedia defines a double top as "a reversal chart pattern which is defined by a chart where a financial instrument makes a run up to a particular level, then drops back from that level, then makes a second run at that level, and then finally drops back off again." The difference between July 7th's top of 12,719 and July 21st top of 12,724 is just 5 points.
On July 21st, again, the Market news media was ringing the bell, happy days are here again. The operative word on the street -- Buy Buy Buy. The Market is going higher. There were many articles being written on all the financial news websites explaining about which stocks to buy if you missed the big run up.
But any savvy technical analyst would have looked at that chart and said, "Double Top". The old adage, "Sell in May and Go Away" was about to come true.
From that moment on, the Market dropped 1400 points. All those customers who were encouraged to buy at the top watched their investments devalue. In just 10 days, all those who were encouraged by their brokers to Buy Buy Buy, have now Lost Lost Lost. I
For those who do not understand technical analysis, you have to become dependent on your broker to tell you when is a good time to buy or sell. No broker will tell his customers, by the way, there is a technical double top in the Market and don't buy today. Investors need to learn to defend their own portfolio, especially in an economy that may be going down for a double dip recession.
