While Friday’s action was quite volatile, there were actually some very profitable and simple trades you could have taken within the price structure on the day.

Let’s look at the DIA (Dow Jones ETF):

The day did not begin with a significant gap, yet within the first 30 minutes, price had fallen from $122 to beneath $119, which was a 300 point Dow drop. It was difficult to get any entries into this large volatility momentum move down, which occurred due to fears that the recent economic (financial) injection (stimulus plan) might not work after all to save the banks from financial crisis. Shortly afterwards, the Fed announced a major bailout of Bear Stearns (BSC), which was the major new event of the day.

Price recovered, and found significant resistance at the falling 20 period MA, which set up a short-sell trade if you were aggressive (trade highlighted in purple). Price inflected off the daily S1 pivot (not shown) and then pulled back to the falling 20 period MA again, setting up an identical trade which terminated also at the daily S1.

Savvy traders may have noticed a triangle consolidation forming, which prompted them to stay out of the market until a break of consolidation occurred. Even though the day had so much negativity and downside momentum, it’s still best to wait until price breaks because you cannot predict the actual price ejection direction from consolidation triangles (though triangles tend to be continuation patterns).

The break on higher (relative) volume signaled a trade to the downside, which targeted the distance of the height of the triangle, which witnessed a disheartening ‘throwback’ (notice the doji candle just before 1:00) which took out conservative traders with tight stops in this short-sell trade.

The initial break paused and formed a 45 degree angle pull-back into key resistance again by the 20 period moving average, which set up a high-probability short-sell trade again which was a classic bear flag (which achieved its target perfectly, which happened to be the intraday low).

A lengthy momentum divergence had been setting up all day as price continued to make lower lows, signaling that a turnaround was increasingly likely. Indeed, this occurred, as the day closed with moderate strength, rather than closing on its lows.

An “impulse buy” trade set-up with momentum making a new high and the pullback into moving average support allowed for a buy-side (long) trade with a small target (which gave you 50 Dow points into the close if you are a pure day-trader).

While there were many more trades to be located, I always recommend you keep a file or journal of what you perceive to be the ‘ideal’ trades of the day, and then look at your results to see how much of those ideal trades you captured, or what percentage of the available profits (or losses) you achieved from these trades.