Amazing Trend Day Up

Let’s look at the idealized trades for the final day of January, 2008.

As our proxy, let’s use the DIA (Dow Jones ETF):

The first trade is to FADE the gap (buy long and play for a target of yesterday’s close). This trade worked out perfectly.

The second trade impulse is to trade IN the direction of the gap, once the gap has filled. A stop is placed just above yesterday’s close, and if taken out (your stop is hit), then that often signals a stronger trade signal to trade that direction (again, long).

We had a standard “Three Push” move where price pulses three times in one direction with shallow retracements, often to the rising 20 period MA. Any of these would have been a strong trade, especially the final push, which basically screamed “Trade Me” because price was in an uptrend and pulled back to massive support (via the convergence of the 20, 50, and 200 period moving average). Your stop would have been just below this level.

This was a “Gimme” trade because of the massive level of support beneath the market (that the market should not test) and the strong impulse that occurred as a result of the “gap fade”.

Because, by now (by the third and exhausted price pulse), we should have been expecting a “trend day” style structure, we should have bought any pullback to the rising 20 period moving average. Notice how each of those trades would have worked.

The market was extremely overextended into the close, and the large volatility move may have shocked traders, but that’s what we’ve come to expect from the close: shock moves that unfold suddenly in one direction or the other.

I had a great day trading today, as many of my classic trades ‘fired’ and I traded them almost effortlessly. I think I said at one point today “the market is offering me low hanging fruit.” The market was ‘hot’ according to my understanding of intraday price movement and core (basic) trade setups that I understand.

As always, I strongly encourage you go back and annotate the trades that you would deem “ideal” now that the day is over and keep a running journal of your annotations so you’ll be better able to take the trades that set up that are part of your understanding.