A Second Divergent Drop for Google GOOGL

Mar 22, 2017: 2:33 PM CST

Google (GOOGL) rallied a second time into a key reversal or “fade” set-up and delivered the goods.

Let’s take a look at this “Divergence plus Upper Bollinger” pattern and learn what we can from this example.

Most trades are either taken in the direction of a prevailing trend or against it.

While I prefer pro-trend strategies like retracements or breakouts, aggressive “fade” or even reversal strategies have their place in a developing trader’s toolbox.

The “Divergence Plus Bollinger” fade set-up occurs in a mature uptrend when price rallies up into – or preferably peaks just above – the upper Daily Bollinger Band.

We can look beneath price at volume or momentum – often seen best on intraday charts – for any sign of negative divergence as price scrapes against the upper Bollinger Band.

This set-up is enhanced – with higher probability of success – when reversal candles like dojis or shooting stars (or even spinning tops) appear at the upper Bollinger Band.

VERY aggressive traders can short-sell a break of a rising trendline on a lower timeframe as we see here:

It’s difficult to short-sell INTO a rising market as price continued (extended) its rally until the eventual drop.

The first “drop” was May 20th when price collapsed in a gap-down through a rising trendline and the rising 20 EMA (hourly chart).

That would have been an aggressive short-sell but it required a wide stop (beyond the prior high) as buyers (unwilling to give up yet) thrust the price back toward the $874 prior high (but not above it).

That’s where we see the COLLAPSE through the 50 EMA down toward $850 where the fade ended.

The TARGET for this type of aggressive “Fade Trade” is often a rising moving average on the Daily Chart.

In this example, price crushed through the rising 20 day EMA target of $856.

You can take off the whole position or just half as price reaches a target (and hold as long as possible, exiting when price rallies through a falling trendline – at roughly $852 in this example).

Fade Trades can be fun but are often more stressful than classic pro-trend retracements, but they’re available to you as you progress your trading knowledge and experience.

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Corey Rosenbloom, CMT

Afraid to Trade.com

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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).”

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