Fascinating Intraday Action Revealed

Jul 7, 2008: 8:39 PM CST

Today’s intraday price action in the major US Indexes was nothing short of fascinating.  Swift moves caught both longs and shorts off guard, and momentum, velocity, and volatility was high – despite the day ending not far from where it started.

DIA 5-minute chart:

I expected an upside, potential upside reversal bias to the day and began trading as such, happily confirmed by the upside gap and impulse move.

Price then formed a consolidation triangle (range) into the lunch hour, although a few key buy (long) scalps triggered and were successful as price tested and held the 5-minute 20 period moving average.

Price expansion follows consolidation, and so a trend move after lunch was expected, and so it would have been profitable to place buy and sell (entry) stops in a bracketed fashion on the outside of the consolidation zone, but the ideal trade of the day came just after noon when price broke down out of the consolidation pattern, rallied back for a ‘throwback’ trade (red arrow), and then capitulated beneath the key support zones (50 and 200 period moving average, as well as the ‘gap fill’ and yesterday’s close).

A short sell at this time had no justification that price would give such a big win, but we as traders have to be prepared that any trade at any time can either take off strongly in our favor… or against us.

This was an example of why you should always use stops – it just takes one day or one trade like this when you’re on the wrong side to decimate a string of profits.

Nevertheless, price surged to the downside and then formed a consolidation range and a distinct positive momentum divergence – odds shifted to favor higher prices at this zone.

Once price broke back above the 20 period EMA, that signaled a ‘buy’ trade to target at least the 50 period EMA if not higher (aggressively).  Price met and exceeded this objective before running into resistance as expected at the confluence of the 200 period moving average and yesterday’s close (which often serves as a ‘price pivot’).

Price inflected off this level to close in the lower part of its range for the day.

The chart of the QQQQ (NASDAQ ETF) looks similar, only we had a higher close on the day:

Be very careful in your intraday trading strategies – try not to swing for the moon in this whipsaw-filled environment.  Watch your stops and manage your trades closely – this environment calls for precision and steel nerves, as well as quick reflexes.

Do be careful.

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