Absolutely Fascinating Intraday Affairs

Jan 15, 2009: 8:32 PM CST

Today provided a plethora of material to discuss in terms of the “idealized intraday trading” set-ups, so without further delay, let’s look at these on the DIA 5-min intraday chart:

The day started off normally (no gap), given that Apple’s announcement that Steve Jobs was taking a medical leave of absence brought expectations of a down-open.  Ultimately we got that initial swing down, but surprisingly it didn’t come in the form of a gap (the futures were actually up prior to the open).

So the first push was to new lows which also formed a new momentum low which hinted that lower prices were yet to come.  We got a quick two-bar retracement that set-up a bear flag that got its target and took us yet again to new lows on the day on another new momentum low that again hinted that the absolute price low was yet to come.

We got a decent retracement into the falling 20 EMA and formed two dojis in a row which were absolutely ideal ‘short-sell’ entries with low risk.  The stop was just above the 20 EMA and the minimum target was a test of the 10:30am lows – that’s what I call the “Impulse Sell” trade.  It met and exceeded its target as we made new lows again on the day… this time with a significant positive momentum divergence.

If you look closely, you’ll see that the downswing from 10:00am to 10:30, the retracement from 10:30 to 11:30, and the down-move from 11:30 to 12:30 formed an ideal “A to B equals C to D” Measured-Move pattern.

Once we made new price lows on a positive momentum divergence, that should have been a clue that at a minimum, we’re headed back to test the 20 EMA and perhaps the 50 EMA and also that the 12:30 lows *might* just be the lows of the day (more times than not, intraday lows are formed on positive swing divergences just like this one).

Of course, there’s no way you could have guessed how strong the retracement move up (which converted into an impulse move up) could have been, but your #1 clue that we had shifted from a bearish posture to a bullish one was when price shattered the 20 and 50 EMAs with no resistance and then pulled back to the “Confluence Support” Zone that formed just before the EMAs crossed ‘bullishly.’  Price surged to new intraday highs after this pattern set-up.

We made a new price and momentum high at 2:00pm, hinting that the actual price high was yet to come and it did so also on a new momentum high at 3:00.  Price formed a deeper than expected counter-swing back down just beneath EMA support to close strongly on the day, calling the recent daily downswing into question by forming a bullish doji candle on a (likely) successful test of the daily Bollinger Band.

Continue to study the day’s action for further insights – there were many excellent and informative patterns that arranged themselves during the day that might warrent your further attention.

Corey Rosenbloom
Afraid to Trade.com

19 Comments

19 Responses to “Absolutely Fascinating Intraday Affairs”

  1. Gawed Says:

    how could one have decided on exit strategy that nailed the days high? or at least not get caught in all that downswing? i mean after crossing the last EMA on the chart i would have never expected for it to go down so much and probably would have lost a lot of the gains… any signs that could have avoided that?

  2. Reggie Perrin Says:

    5 min chart gives clues but day dominated by big picture

    ie mkt needed to test the lows to test for further sellers.So with no further follow thru the oversold mkt cd
    rally on Bollinger support at the key sp500 level of 818 from first week of Dec.

    I think the daily Doji close is significant.

  3. Anonymous Says:

    What is the oscillator at the bottom of the screen? (Still learning.)

  4. Corey Rosenbloom Says:

    Gawed,

    Wouldn’t that be nice! There – in my analysis – was no possible way to know that would be the top. It broke resistance but didn’t stop at a logical point on the 5-min chart.

    When we came back to EMA support at the end of the day, that was a buy signal that was ‘faded’ as price broke support, took out stops, but then rallied.

    Trading’s about probabilities and structure. Sure would be easy if there were certainties!

  5. Corey Rosenbloom Says:

    Reggie,

    Yes, the day went nicely in terms of technical structure until we had the massive mid-day rally and deep correction at the end. It was the deep timeframe folks who likely drove that move.

    I do agree that the doji does stand to change the technical picture a bit. Like another reader commented: The market will move in such a way to make the most people miserable. It formed and confirmed a bull trap and now wouldn’t it be awful if we get a bear trap TOO? We clearly broke beneath a wedge and horizontal support and if we rally up higher, we’ll get a bull and bear trap back to back which is very rare.

  6. Corey Rosenbloom Says:

    I’m using a derivative of the classic “3/10 Oscillator”.

    To get it, in StockCharts.com, select the standard MACD and then type in 3, 10, 16 into the boxes. It turns it into a swing and momentum oscillator then. It cannot be interpreted like the standard MACD.

  7. Anonymous Says:

    Hi Corey, do you use some kind of multi-timeframe analisys for daytrading? Or you fix your attention to only one time frame (it seens that you like the 5min) ?

  8. Corey Rosenbloom Says:

    Anon,

    Absolutely, but I’m just not able time-wise to show them all to readers in my evening posts. I keep meaning to show a screencap of my monitors but I’m focused on the 5-min and have the 15 and 30 running in smaller windows with the daily in a larger window too.

    I often set trades up off daily structure and then trade them a bit more aggressively on the 5-min. But yes you have to view and be familiar with structures on higher frames. I don’t drop to the 1min chart frequently however.

  9. Manju Shekhar Says:

    Hi Corey,
    I have been following your blog only recently. I must say this is ‘The Best’ trading blog out there. I have learned so much from your articles in the past few days. I have actually started incorporating your strategies into my own intra-day trading methodology, which I’m still quite new at. Thank you so much for doing such a wonderful job for the trading community.
    On the subject of intra-day trading, I had a question about Level-2 & Time & Sales screens. Do you watch these at all when you day trade. I’m really trying to interpret the information in these windows. What’s the best way to use these to time your entries & exits? I was wondering if you could write an article on that, or even just respond here.
    Thanks again & Cheers
    MS

  10. Corey Rosenbloom Says:

    Manju,

    Thank you so much for reading and for your compliments – I’m so honored you feel that way.

    I won’t go near a Level 2 screen personally. I spent more than a year trying to figure those things out and always seemed to get the wrong impression from reading them. Plus, they just move so fast that it makes me nervous and jumpy and I take action at the slightest move which is horrible.

    I’m not saying don’t look at them, but for me and my style (price based target trading) it has absolutely no use for me other than to scare me.

  11. Manju Shekhar Says:

    Hi Corey,
    Thanks for replying. Actually, that makes me feel better, cause I wouldn’t want to look at those screens either, but it seems there’s so much of hype around them, with strategies designed to time entries using them, etc. that it made me wonder whether I really had to master them to be a successful day-trader.

    Cheers

  12. Corey Rosenbloom Says:

    Manju,

    I always say that there are literally thousands of ways to make money in the markets… but that so few people do.

    With any market strategy, there are a handful that do very well while the majority often struggles.

    The Time & Sales window is appropriate for scalpers and other active traders but for my more relaxed, chart based set-ups that I detail here, it’s not necessary at all to look at the T&S even though we’re clearly daytrading. I also warn against taking in too much information to try to make a timely decision.

  13. Manju Shekhar Says:

    Good point, Corey. Thanks again!
    -manju

  14. Abe Says:

    Corey, interesting post as usual; it is not the first time you noted “It cannot be interpreted like the standard MACD” in regarding the 3/10 macd ; could you please explain what you mean?

    thanks

  15. Manju Shekhar Says:

    Corey,
    I was wondering if you have done any posts on your stock selection methodology for intra-day trades. If not, could you possibly do an article on that? I understand that you look into sector strength & other fundamentals for your swing trades. But how do you select stocks for your day-trades? For e.g. do you just use your watchlist for swing trades from the night before and just day trade those, as & when you have a signal?
    Personally, I’m keeping things simple for now, just day-trading the indexes (DDM, DXD, FAS. FAZ, QID, QLD, etc). I find it overwhelming to monitor individual stocks outside of my list of indexes.

    Comments & thoughts appreciated.
    Cheers
    Manju

  16. Corey Rosenbloom Says:

    Abe,

    That’s a whole article right there!

    In short, it transforms the MACD into three types indicators: Momentum, Swing, and Trend. Actually it uses calculations with SMAs instead of EMAs like the MACD does.

    You’re looking more at the black line and less about the crossovers (as you would a MACD). You’re also comparing it more with price swings than you would a MACD.

  17. Corey Rosenbloom Says:

    Manju,

    Good question! I used to scan a large list in TradeStation looking for certain indicator values (RSI, ADX, ATR, etc) but wound up focusing almost exclusively on trading the DowMini and MiniGold futures and trading in a more relaxed method than scanning gives you.

    I would recommend specialization over generalization so that you can learn the ‘character’ or ‘behavior’ of key stocks, indexes, or ETFs sort of like you are doing there.

  18. Manju Shekhar Says:

    Corey, thanks for responding. It’s good to know my methods are sane, at least thus far 🙂

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