A Little U-Turn Buy Action with Gap Fade

May 12, 2008: 12:12 PM CST

So far, the US Stock Market Index trading has been stable using simple strategies that I have discussed frequently on the blog.  Let’s examine the U-Turn Buy (or Saucer/Rounded Bottom) action along with the classic Gap-Fade trade today.

You can almost ‘feel’ the balance shifting through simple visual inspection of the price action alone to see that the strength of the selling weakened as the pace of the buying first met selling and then exceeded it.

The “U-Turn” or shift in price was complete (or confirmed) with a positive momentum divergence.

Also, on the daily chart, price sat at support where the even shift began, which further added confirmation to the potential for (short-term) higher prices.

Let’s talk about the gap-fade trade that worked out marvelously this morning:

Quickly, the ideal gap-fade technique is the following:

1.  Fade the gap down to yesterday’s close

2.  Exit the ‘fade’ at the close and then reverse your position to trade in the direction of the impulse

3.  Exit at the intraday high (or sell half the position there and perhaps play for a larger target with what’s left… if you’re aggressive).

These three parameters hit perfectly today, though it’s not always the case that they work out as ideal as today’s action has.  I always recommend printing out and annotating any ‘near perfect’ patterns or trades that develop.

Good trading!

Comments Off on A Little U-Turn Buy Action with Gap Fade

Comments are closed.