Persistence beats resistance.
I hate that line. I hate it more than almost anything.
That’s a market technician saying. Because crap goes up, it keeps going up. Because crap goes down, it keeps going down.
Until of course it doesn’t.
So Why Am I Nervous At This Level Anyway
Because I am. I’ve got a position on in Meta against a level it has hit four separate times now, and I don’t mind telling you it makes me nervous.
Just not for the reason you think.
What I don’t like about trading against a level has nothing to do with what’s on the chart. It has everything to do with who else is looking at the same chart.
Say you’ve got a big round number sitting up there, and for Meta that’s 680. A bunch of retail traders and a bunch of proprietary traders pull it up and go, that looks like it’s going to squeeze.
So they buy calls.
And in buying those calls, they cause the squeeze they were predicting.
It becomes self-fulfilling. Not because the level means anything, but because enough people decided it did and then acted on it at the same time.
How You Check
So if the level isn’t the signal, the activity around it is.
Go look at the option flow, because that’s where you’ll see it before you see it in price.
In Meta this morning, calls were running six times normal daily flow. Puts were running about 4.8. And the calls weren’t printing at the ask or above, they’re trading in between.
Nobody’s buying Meta here because they love the company. They’re buying it because there are enormous numbers of calls trading, and somebody on the other side of those calls has to hedge.
So the tell is the flow around the level, and the level itself tells you almost nothing.
Because a chart can’t tell you whether the people looking at it have already made up their minds.
To your success,
Don Kaufman
P.S. A chart is a picture of what already happened. Every indicator you’ve got is built out of that same past price.
Thursday at 2pm I’m introducing a trader I’ve known for years who stopped looking at them entirely. One screen before the open, one trade left sitting there, and he’s done by 9:36.
He’s going to put all 71 of his documented trades on the screen. Wins, losses, and the eleven that went to zero.
Free, 500 seats, and one attendee on the livestream leaves with $2,000.
