I am often asked if the SRVs I use in short term trading are really necessary?

In the belief that a picture is worth a thousand words, please examine the following chart of the US Bond market for Monday morning, 9-23-2013.

Keep in mind that the SRVs (the horizontal lines) were added to the chart Sunday – the previous day.

Figure 1 US Bond, 300 ticks per bar, 9-23-2013.

If a trader starts to work at about 6:30 am (as I usually like to do), what would they likely expect price to do. Notice that price is trending up, currently just over the middle Bollinger Band with one SRV just above it at 131 23/32. Because of the bullish nature of this chart (and our other intra-day charts) and the fact that the SRV at 131 23/32 is about equidistance from the middle and upper Bollinger Band, we would hesitate to so short here.

However, there is a lot of space above that SRV if price can break through to the upside.

Note that price did break through to the upside and went all the way (precisely) to the next SRV to the upside – at 131 31/32.

Failing to break that SRV – after trying twice – price then moved down to the previous SRV at 131 23/32 – only to bounce again to the upside and return to SRV at 131 31/32.

At least three profitable trades could have been made in this market so far.

With all the SRVs lurking above 131 31/32 we would likely want to go to the sidelines and see what the market can do – we would expect a lot of action taking place within a tight trading range for a period of time.

We will just have to wait and see what the next hour or so brings (it is 10 am as I write this).

Our thinking is that price is going to have a tough time going much higher, but at the same time there are pretty strong up trends in place in the 2500 and the 7500 ticks per bar charts.

In such cases it is generally a prudent time to stay out of the market because the probability of direction of the next significant move is too difficult to call.

As a short term trader, we prosper of trading with the probability of success – when the probability is 50% of less it is best to just wait for a better setup.

You can learn more about this trading method by reading the eBook See the Music of the Market currently available at a big discount from www.tradingbetweenthelines.com.

 

One Response to Are SRVs really important?

  1. Hey there! I’ve been following your blog for a while now and
    finally got the bravery to go ahead and give you a shout out from Houston Texas!
    Just wanted to tell you keep up the excellent job!

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