Fun Intraday Trades

Mar 5, 2008: 12:54 AM CST

Tuesday’s action provided a plethora of key set-ups and high probability trades on the short time frame intraday charts on the US Indexes.

Let’s check out the Dow Jones “Diamonds” ETF (DIA):

The first trade when there’s an overnight gap is to fade the gap for at least a 50% retracement and a potential full gap fade. Today only gave us a 50% fade trade early on.

At the failure to close the gap, the market offered up a clear bear flag trade which targeted a ‘measured move’ of the initial flagpole (which included the invisible overnight gap price).

Any pullback to the key 20 period moving average set up a trade with a small target of the previous swing’s price low. These trades worked, but the momentum divergence that was building (purple line) gave clues that the bears were losing steam.

Aggressive traders could have played both sides of the channel that developed, but ‘counter-trend trading’ by buying down-swings in a clear trend day down can be a low probability strategy.

Fortunately, the lengthy momentum divergence led to an upside break of the strong downtrending channel of the day, leading to a miniature bull flag entry and “three push” pattern.

A key breakout trade came NOT at the breakout zone, but at the purple oval I’ve drawn, which represented the pullback to retest the channel and key moving averages.

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8 Comments

8 Responses to “Fun Intraday Trades”

  1. Fun Intraday Trades | Great Trade Says:

    […] unknown wrote an interesting post today onHere’s a quick excerptAny pullback to the key 20 period moving average set up a trade with a small target of the previous swing’s price low. These trades worked, but the momentum divergence that was building (purple line) gave clues that the bears were … […]

  2. adam Says:

    What MACD parameters do you use for the 5 min graph? Using 12/26/9 my MACD graph is different. Also, what are the moving average periods you use for this?

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  4. NTH Says:

    Hi,

    > Today only gave us a 50% fade trade early on.

    There was no “fade the gap” advantages on Tue (4th Mar) on DIA. The previous days close was around 122.5. On the 4th it opened at 122.6 and dropped quickly to 121.7. Thereafter it went back to 122 but for anyone using the trade the gap type of trade, they would have been stopped out close to where they would have bought (even if they bought the sweetspot).

    “Hindsight trading” on charts, picking places to buy and sell is pointless. Perhaps you should put a post on your website that you have bought at N:NN time a certain. Then come back later and close it. Only that way is it real-time and valid trading.

    Best Wishes with your trades,

    NTH

  5. Corey Rosenbloom Says:

    Adam,

    I use the MACD indicator that’s standard on StockCharts.com and use parameters 3, 10, and 16 respectively. This is similar to the settings of an indicator used by Linda Raschke.

    For my moving averages, I use a 20 and 50 period Exponential, and then a 200 period simple.

    Thank you for the question.

  6. Corey Rosenbloom Says:

    NTH,

    I post idealized trades for myself and for readers, so that you know the maximum profit potential available, and I do it for educational reasons for readers to develop their own strategies and incorporate these examples into their own experiences.

    It works for me, because in posting ‘idealized trades,’ it helps me know when the set-ups happen (or what they look like) in the past so that I’m more in-tune to recognize them real time. I never get the ideal or perfect entry or exit – I don’t think anyone does – but it helps to look back and see the full profit potential and the set-up in hindsight so that, in seeing it repeatedly and across multiple days, it becomes almost automatic to recognize in real time. Then it becomes a matter of bracket orders or simple reflexes on this short-time frame. One also needs a reference point to measure your profit vs. actual profit available to determine profit efficiency, or how much of a percentage of the potential move you actually received (there are a few methods to do this, of course).

    Regarding the gaps, I give the market one or two 5-minute bars to shake out the overnight excess before I consider entering a trade. That’s not the classic method, but it adds more confirmation and allows the market to settle down a bit from the rampant volatility from the open, like the large range bar/price swing you mentioned. Personally, I miss perfect entries because I wait for a little more confirmation before entering.

    Again, I sometimes post end-of-day charts that highlight classic educational trades and idealized trades, rather than talk about my fills or entries or exits. The premise is that in seeing near-perfect setups and how they formed and resolved, you will better internalize the patterns and trade them as best you can when they occur.

    I thank you for the comment and for reading.

  7. NTH Says:

    Hi Corey,

    Thanks for your detailed reply, appreciated.

    > I post idealized trades .. so that you know the maximum profit potential available, and I do it for educational reasons for readers to develop their own strategies

    I understand where you are coming from and what you are trying to do. The problem with idealized trades is that its simple to make money in hindsight, you can make an example of anything and your trade will always be in profit. Its much much harder ahead of the game, not only because a chosen strategy may not come about or may go awry, but because markets move quickly, your set-up may miss the pick-up point as the market can move 12 pts or more in a second/tick, your stop-loss may stop you out too early, etc, and costs of trades need to be factored in. Backtesting of strategies help ‘prove’ or not their potentials.

    > it helps to look back and see the full profit potential and the set-up in hindsight so that, in seeing it repeatedly and across multiple days, it becomes almost automatic to recognize in real time. Then it becomes a matter of bracket orders or simple reflexes on this short-time frame.

    Yes, but many more examples are needed, and full backtesting, not of a selected strategy on a given stock on a given day, but on many stocks over a very long time. There are lessons to be learned, every day in fact, I grant you that.

    You can learn real-time lessons though on small amounts, or on virtual trades. Try that out. It would be more interesting to see your results from that.

    > One also needs a reference point to measure your profit vs. actual profit available to determine profit efficiency, or how much of a percentage of the potential move you actually received

    I dont think this is helpful to traders as it is going to show that there are N opportunities missed. In hindsight trading I could make a million a day, quite easy. In real-time trading, I cant. Therefore opportunity missed is going to be N times what I actually make. Thinking of the ‘what ifs’ or the things that were ‘missed’ wont help.

    > allows the market to settle down a bit from the rampant volatility from the open, like the large range bar/price swing you mentioned.

    Agreed, early morning trades are volatile and can swing by 10%. Some traders delve in hoping to make in this time period though. I have not studied it enough to have a strategy on it, but where there is volatility over 1-second ticks, there are opportunities.

    > Again, I sometimes post end-of-day charts that highlight classic educational trades and idealized trades, rather than talk about my fills or entries or exits. The premise is that in seeing near-perfect setups and how they formed and resolved, you will better internalize the patterns and trade them as best you can when they occur.

    I agree with you in terms of the education. We can never know enough, and these idealized trades are good. However, I’d like to hear you talk about your trades. As your blog title says, ‘afraidtotrade’, but you aren’t, so lets see from of them when you get the chance.

    As always, best of luck with your trades,

    NTH

  8. Corey Rosenbloom Says:

    True, hindsight is difficult, but I’m not one of those people who say “I bought here and sold here and made a whole lot of money and you can too!” My purpose is to draw attention to a trade set up to know what it looks like as close to perfection as possible. From that, you can know where to place stops in the event the pattern fails in real time, or if you are taking a sub-optimal trade setup.

    Real time trading – especially on the intraday charts and with futures as I trade – are not perfect, and large volatility moves occur suddenly. But the trades I discuss refer to clear support and resistance levels, and divergences and one can enter a trade prior to the market hitting one of these levels. It’s not a unique approach, but a clear approach with each set-up I teach having clear entries, exits, and stops. What I do with the blog is point out these set-ups.

    This blog is not intended for me to detail all of my trades in the open forum. I may change that approach in the future, and am open to reader comments, but am not in a practice of doing so currently.

    Personally, I trade intraday off the @YM futures contracts using the 5-minute chart and 15-min chart with structure off the dailies. I swing trade based off of sector rotation principles, and I rarely discuss these positions either (I do intend to do more into the future). I have held off a lot of the swing trading portfolio due to the market volatility, and have focused more aggressively on intraday trading which has been much more profitable for me.

    I may begin posting real time entries and see what the response is, and I appreciate your insights.