Hey trader,
Thursday morning was ugly.
Gold had dropped over $300...crude was spiking…the NQ gapped down so hard that the first two-minute candle printed a 100-handle bar.
The entire week's rally, the roll gap fill, the push toward 25,000, all of it evaporated overnight.
A trader in the chat named Matthew wanted to get aggressively short.
The 200-day was failing. The weekly chart was cracking. Put a big short on.
"I don't disagree with you, Matthew. Not trying to argue with you, but I don't short the lows. I don't think putting a big old short on here is the way to go."
Ten years of trading the NQ at TheoTrade, and that rule has never changed.
The Week Came Full Circle
The bulls had spent all week building their case. We filled the roll gap. The NQ pushed up toward 25,000. By Wednesday, people were crawling out from under their desks to declare victory.
"All the bulls came out and said, 'We held the 200 day. We're long and strong. Bears don't have a chance.'"
Then Thursday round-tripped the entire week in a matter of hours. Headlines about airport shutdowns were on the tape. Metals were in freefall. The ES was below its 200-day.
The crowd was screaming for shorts. And that is exactly why I started looking for longs.
The AD Told the Real Story
One indicator had my attention all morning: the advance-decline line. While the NQ was getting hammered, the AD was making higher lows and higher highs. It was lifting off the floor.
"I think this is all metals and crude, though. Doesn't really indicate, like, a lot of sellers here."
If you are going to have real, broad-based panic selling, the AD craters. Stocks across the board get dumped. That was not happening Thursday. Gold and crude were dragging the index lower, but the actual stock market was holding together underneath.
That told me the bounce was sitting right there.
If X, Then Y
I built the morning plan using conditional logic and laid it out for the room.
"If the 333 holds, we're going to 412. If the 412 holds, we're going to 500. If X, then Y."
The 333 held. Steve D in the futures room flagged the 412. From that level, I bought the 16 as it came back through on six micro contracts, targeting 50 handles with a 20-handle stop.
The trade hit. Six contracts, plus 50 handles each, 300 handles on a single setup. Combined with pre-market work under the 200-day, I booked 474 handles before the main room session even started.
"Day done on micros."
It took a couple tries to get there. That is the reality of this tape. You take a stop, you take another stop, and then you catch the move that pays for all of it and then some. The 20-handle stop on micros costs you $100 to $120. The 50-handle winner on six contracts pays you $600. The math works as long as you stay in the game.
Selling the Lows Creates Buyers
Matthew's short thesis was not crazy. On the surface, it made sense. But I have a rule.
"Just selling the lows down here to me is... I don't do it. It's just not for me. You go break this stuff and put a daily close below it, great. Let's do it."
I need the market to prove it wants lower prices by actually closing there. Until that happens, selling into a 200-handle drop is providing fuel for the other side.
"That's what we need, though. We need a bunch of folks selling the lows. That's what's gonna create a big old rotation to the upside."
Every panic short at the low becomes a future buyer when that short needs to cover. I would rather be the one collecting on that covering than the one scrambling to get out of it.
Trust the Process
Thursday was the kind of morning that separates process-driven traders from narrative-driven traders. The narrative said sell. The AD said hold on. The levels gave me a plan. The opening range gave me direction.
474 handles on micros. The same levels. The same entries. The same methodology.
"This market will take it from you if you let it, so don't let it."
See you in the room Monday.
Trade smart,
Tony Rago
Creator of the Golden Setup