A Perfect Rounded Reversal Day April 6

Apr 6, 2009: 8:25 PM CST

What a day!  We got an early morning gap and then the remaining structure for the day formed an ideal Rounded Reversal.  Let’s see this intraday development on the SPY 5-min chart.

Typically, if a morning begins with a gap of over 100 Dow points (or in this case, $1.00 on the SPY, the S&P 500 ETF), odds are much lower that you’ll get an actual gap-fade trade.  In fact, a large opening morning gap is often a precursor to a Trend Day… and the EMA structure played this out until mid-day.

The ‘enemy’ of a Trend Day (structure) is a Rounded Reversal structure, and today’s action shows why.

Out of the start, one should have entered short-sell trades off the 20 EMA (with a stop trailed perhaps above the 50 EMA) and particularly taken any bear flag trades you saw.  A multi-swing positive momentum divergence set-in, but if you’re expecting a Trend Day, you need to ignore such a divergence… unfortunately, the divergence was the dominant pattern that played out mid-day.

At 1:00, price found resistance at the 50 EMA, swung back down… but price found a low at the doji candle that formed just after 1:30.  The large momentum surge into 2:00 took out any stops to the downside, and set-up the possibility that a “Rounded Reversal” structure was playing out instead.

The final confirmation… and absolute last stand for the sellers… came at 3:00 when a Cradle Trade formed (at the EMA crossover) and bulls successfully held the Cradle.  This was also an excellent place to ‘get long’ into the close (we’ve seen quite a few bullish surges into the close – today was no exception).

Continue studying today’s intraday activity for additional insights – the more you see these patterns play out, the better you’ll be able to recognize then trade them in real time!

Corey Rosenbloom
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Travel to the LA Trader’s Expo in June to hear Corey speak on “Idealized Trades for Intraday Traders”


2 Responses to “A Perfect Rounded Reversal Day April 6”

  1. Vlad Says:

    Another great clue was when new high $tick of the day was made at 12:55, never looked back

  2. Corey Rosenbloom Says:

    That’s one thing I incorporate into my trading but I don’t always get to show in the limited space of the blog. There’s just so much to say regarding the day’s action that I have to pick and choose what to highlight for educational purposes.

    Good call!