Trading the "Line in the Sand"

Today, I’m writing about the line in the sand and giving specific examples of trading those levels with charts, newsletter snippets, and Twitter posts. I’ll explain different timelines and styles of trading.

INTRO

We’ve had several of these the past couple weeks. The “line in the sand” or LIS is a critical level in the market or individual stock. That is the place where you either live like Biggie Smalls or risk losing your hind end.

How you livin’, Biggie Smalls?

In mansion and Benzes
Givin' ends to my friends, and it feels stupendous.

Credit: gettyimages.com

TSLA

I posted this chart on Twitter October 13 right around the time of the CPI print. $326M at 208.48. That is a big one.

Today’s chart

How would you play this?

Well, a swing trader might buy the lows and hold out for highs. Price draws down 2.3% from the print. The darkpools don’t care about 2%. They will often draw down that far and hold out for 7-15%. The supply line at the top of the chart is 7% higher than the print. One of my Flowtrade bros might have seen the 4hr top and daily bottom kelt come together and think that’s an optimal place to bail and potentially short a move that happened that quickly.

A day trader isn’t going to have much patience for drawdown. 2.3% drawdown on a stock will kill short term options. A day trader might have watched price go under the print and wait for it to find support over the print on a 5 minute kelt to take it up.

Notice how earnings dumped TSLA down, but not really far past the print. Flowtrade bros will also get very interested that price is right by a major block trade and the 4 hour bottom kelt at the same time. Price is also starting to pop over the daily bottom kelt, too. That can be a bullish sign. Paid subscribers know my thoughts on the darkpools are positioned on TSLA from my Friday post.

QQQ

The QQQ levels have been a gift.

To a day trader, these have been helpful in certain situations. A day trader will use the prints as support and resistance and may even buy and sell the print several times in a day. Price will often hug, kiss, bounce off the print both directions.

A swing trader or long term investor will look at the prints differently. Going under the print and then over on a 4hr chart is a big deal. Many times, the print does not hold on the first try, but that is also a bullish sign. A long term investor might start scaling in there. A swing trader may wait for the first run over the print and then buy the second one. The boys at mission control often give you several chances to buy. Don’t worry if price goes over the print 25 cents as it will often come back to the print over and over again, maybe even for a week.

I wrote about selling this week close to the 274.54 print but also noted that the boys at mission control were selling GOOG & QQQ, but not really anything else. The lack of SPY selling was another sign. That was bullish, and a swing trader or long term investor would add to long positions on this pullback.

Then a bounce at the lower print is very bullish.

Summary

Friday may have been the last stop on the train for a little while.

Adding to positions at the line in the sand is scary and doesn’t feel good. One of my friends on Twitter talked about puking the night he bought right after the Covid lows.

Here are a couple of thoughts on my personal barometer for a trade:

• If I feel that a trade is safe, it’s not.

• If I feel that a trade is scary or the world is about to end and the market is going to tank at an important low, that is the line in the sand. It does not mean a trade is safe. It means that we are at an important level and I should be looking at risk / reward and thinking about taking the trade. Most humans will have anxiety here, and that is a good indicator that you are looking in the right spot.

Don’t get me wrong, the line in the sand is a place where you can totally lose your ass.

On the other hand, the line in the sand is the place where you stand to make the highest returns. A long term investor can also wait out a drawdown if they are wrong. The market typically does not go down forever. A swing trader or day trader can stop out before too much damage is done.

My SPY target is 380. That means I think the market doesn’t go up forever either.

Good luck trading, and my hope is this writeup helps to answer some of the questions I’ve been getting about how to trade institutional data.

Rolls