Another Super Divergence and Rounded Reversal Day July 21

Jul 21, 2009: 6:04 PM CST

Today’s intraday structure gave us a nice “Rounded Reversal” example that formed another “Super Divergence” like yesterday’s session gave us.  That’s why it’s so important to study the day’s structure each day because history repeats – sometimes back to back!  Let’s look at today’s SPY intraday structure for lessons from the day’s events.


(Click for full-size image in complete detail)

We began with a morning gap that fractalized into its own positive momentum divergence that preceded the quick rally that ended just after 9:30 CST.  Notice the triple-swing (“Three Push”) Negative Momentum divergence that marked the high of that period just before the price began to creep slowly then accelerate into the intraday lows.

Remember, I find it generally impossible to identify a first and second wave as they unfold, but advanced traders can pick up on the third wave as it develops and most people can identify a third wave once it is complete, particularly if it is accompanied by new intraday Price, TICK, and momentum lows (this had a relative momentum low) as the 11:00am CST swing did.

Review my “Best Trades to Take” using the fractal wave structure for trading insights and what to expect once you think you’ve spotted a third wave (hint:  wait out the 4th wave retracement and then short the 5th wave as it begins to form to the downside and be vigilant for a divergence and the end of the 5th wave to reverse and get long).

This created the powerful “Super Divergence” as I like to call them which – in my opinion – was the best trade of the day (long), and the precursor to the “Rounded Reversal” we had in price.  Such super divergences often destroy the expectancy of a Trend Day (in this case, to the downside).

This is just another example of how it’s best to track price with the TICK and a momentum oscillator for confirmation/non-confirmation and to be familiar with ‘type of day’ structure.

As always, I detail the day’s structure including the successful and unsuccessful trading opportunities both as educational resources because these patterns and topics I share in “teaching moments” WILL repeat themselves.  Knowing them will give you the confidence to understand and trade these patterns, as well as uncover the type of day structure, as they develop.

For more information, and to subscribe, please visit the ‘more information’ page to begin receiving these 5-page PDF reports, including a discussion of what to expect on the next trading day’s session, on our new Premium Section’s “Idealized Trades” reports – introduced at only $27.oo per month.

Do take the time to learn these patterns and structures – they repeat frequently which offers opportunities to those in the know.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

7 Comments

7 Responses to “Another Super Divergence and Rounded Reversal Day July 21”

  1. pipercolt Says:

    Theres another trader, I follow from the Advanced trading workshop that will call this the triple pivot divergence, his own patented spin on it. But have to admit your analysis to identify a 3rd wave is inquisitive.

  2. Name Says:

    sorry, in hidsight this looks pretty good.

    but if i follow your divergence setup questions come to mind.

    around 11.45 the market made new lows accompanied by positive divergences.
    it was followed by 10min of bouncing around this level and even breaking wave 3 final to the upside again.
    one could easily have argued that in this very moment wave 5 was forming.

    but the setup failed and was followed by another breakdown whoch lead to final wave wave 5.

    so could you please elaborate on how you avoided this trap and you confidently identified wave 5 while it was IN THE MAKING?

    where was the entry/stop?

    thanks a lot!

  3. JeffreyLin Says:

    definitely an interesting day to analyze corey.

  4. Corey Rosenbloom, CMT Says:

    The only way to learn is to analyze your trading as such after market close and see these patterns play out numerous times – that way you pick up the nuances and that's why I describe these on the blog – it's both beneficial for myself (in establishing a database of daily structure) and for readers who don't know these concepts and are learning them. More info on this at: http://blog.afraidtotrade.com/faq/

    The only way I can tell you to avoid traps is two-fold:

    1) Nightly review of performance on your own, noting your particular trading style and understanding of set-ups and market action and making notes where mistakes or 'traps' were made and analyzing how you might have traded better (ie was your stop too tight?)

    2) Keep stops a little looser.

    The final 5th wave had a mini-5-wave structure as expected. What you're noting is the 3rd wave low of the 5th wave fractal. Impulse waves subdivide – knowing that would have helped.

    Your entry/stop is going to depend on what you're trading – SPY, @ES, SDS, etc – I show SPY because it is the core that people who trade other ETFs or futures can relate to.

    You also could have trailed a stop just above the 50 EMA on the 1-min chart to be safe and exited as price began to rise off the lows on a powerful impulse candle.

    You also could have held short until price broke above the 50 EMA on the 1-min for 'proof' price was most likely finished going down and entered long there – that would be a conservative entry which would have been fine as well.

    There's unfortunately no one answer that works for everyone.

  5. Corey Rosenbloom, CMT Says:

    Piper,

    Thanks for your comment! I'm unaware of that term but the point is that many professionals are using similar tools (any un-bound oscillator will work fine, including RoC) and honestly you don't need the oscillator – just compare length of price swings.

    Adding the TICK and noting TICK Divergences adds a deeper dimension in terms of market internals, which are not based on price. I much prefer TICK divergences to standard momentum divergences.

  6. Corey Rosenbloom, CMT Says:

    The only way to learn is to analyze your trading as such after market close and see these patterns play out numerous times – that way you pick up the nuances and that's why I describe these on the blog – it's both beneficial for myself (in establishing a database of daily structure) and for readers who don't know these concepts and are learning them. More info on this at: http://blog.afraidtotrade.com/faq/

    The only way I can tell you to avoid traps is two-fold:

    1) Nightly review of performance on your own, noting your particular trading style and understanding of set-ups and market action and making notes where mistakes or 'traps' were made and analyzing how you might have traded better (ie was your stop too tight?)

    2) Keep stops a little looser.

    The final 5th wave had a mini-5-wave structure as expected. What you're noting is the 3rd wave low of the 5th wave fractal. Impulse waves subdivide – knowing that would have helped.

    Your entry/stop is going to depend on what you're trading – SPY, @ES, SDS, etc – I show SPY because it is the core that people who trade other ETFs or futures can relate to.

    You also could have trailed a stop just above the 50 EMA on the 1-min chart to be safe and exited as price began to rise off the lows on a powerful impulse candle.

    You also could have held short until price broke above the 50 EMA on the 1-min for 'proof' price was most likely finished going down and entered long there – that would be a conservative entry which would have been fine as well.

    There's unfortunately no one answer that works for everyone.

  7. Corey Rosenbloom, CMT Says:

    Piper,

    Thanks for your comment! I'm unaware of that term but the point is that many professionals are using similar tools (any un-bound oscillator will work fine, including RoC) and honestly you don't need the oscillator – just compare length of price swings.

    Adding the TICK and noting TICK Divergences adds a deeper dimension in terms of market internals, which are not based on price. I much prefer TICK divergences to standard momentum divergences.