Moving averages and the pre-market activity

I have been using Stockcharts.com for quite some time so I got used to them only having 0930h to 1600h available for intraday history. This led to not having any reliable means of using moving averages for the first 30, 50 or 200 minutes depending on which average I may have wanted to use for primary trading on any given day. The great days were days were the open was very close to the close price to allow the averages to be valid very soon.

Now that I am used to using the Esignal.com charting I have seen the advantage of using the pre-market activity to judge earlier morning trading using the moving averages, along with some other information, sooner.

I use yesterday as an example.

My PP200 plan is to use the 200 period moving average as a launching pad for trades with the 30 and 50 as directional indicators... along with other information but these are my initial setup guides as they are historically very sound for short term trading...long term as well but I have yet to test that out.

Here is the chart for SDS as I annotated it yesterday. I used the 50 sma as a launching pad for the long trades based on my bias for the morning and the position of the 30 sma (somewhat as trade number two didn't use it at all). Note how the green 200sma does not get near the price until after 1215h.

The chart below contrasts with the first. It is a shorter timeframe as the 0930h start is 1/3 the way into the chart and it only goes to 1430h. Now, I can't put all the pretty arrows and nice annotations in that I can on Stockcharts but all the daily and monthly pivots, daily OHLC are automatically there. So I numbered the similar trades 1 and 2

The first trade would be in at $68 (I'll use nice even numbers that are terribly idealized for simplicity). Following the blue 50 sma has me stopped out at $68.75. 75 cps, not bad but the entry is a little out in the breeze even though the primary pivot point is at $67.80...that's a 20 cps loss allowance off the start. Trade 2 is in at $68.90 stopped out at $69.45. 55 cps. Still not too shabby. The entry was right in line with the 1/2 R1 pivot and the 22nd opening price, not bad for confirming information so a tighter stop of 10 cps could be managed.

Total theoretical gain of $1.30 per share with a possible loss allowance of 30cps. a nice 4.3:1 gain/loss ratio.

Chart two, while not as pretty, has far greater potential. The pre-market price is climbing and crosses the 200sma at the open...right away that makes the 200 valid immediately even though it does not technically catch up until 1020h. Trading is about the pivot, the 30 and 50 are at or above the 200 and trending up, the price did not establish a new lower low. The resolution is not great but the price drops a tad to within 10 cents of the 200 on the way past for a prime entry at $68.26. The stops could follow the 30 or 50 but I would pick the various pivots and previous day open, close etc once they were crossed. The stop would move three times, $68.50, $68.90 and $69.25..stopped out. 99 cps....ideally but possible.

Trade 2 starts out with a more defined test of the 200sma as the price again drops within 10 cents. $68.30ish. The 30 and fifty are closer so I would use them as stops along the way this time in addition to the various lines. Hard to tell without having really been paying attention to this at the time with the different total timeframe....I scrolled through this a bar at a time and found that I would have stopped out at $69.40 as I ended up picking the blue 50 sma once it crossed the previous day's high at $69.25. $1.10 per share.

Total theoretical gain of $1.99 per share with a possible loss allowance of 30 cps. a nice 6.6:1 gain/loss ratio. The Esignals timeframe allowed a better entry price for he second trade and a higher stop setting for the first trade. The ideas behind the trades are the same.

Jeff.