Intraday Bear Flags Galore
I’ve honestly never seen so many valid Bear Flag trades in a single intraday session. Let’s see all these flags and view the intraday structure for February 26’s trading session in the DIA.
The day began with an initial gap, and though the first play perhaps should have been a gap fade, your trade was likely stopped out as the gap initially filled 50% before making a new high and then filling in such an awkward fashion. For research purposes, the day will go down as a filled gap.
At 11:00, there was a prime shorting opportunity as price completed a “Three Push” Reversal Pattern (excellent example for future reference) on a Negative Momentum Divergence. As if to make the trade clearer, a shooting star formed just after a doji – these tend to be high probability reversal patterns when other reversal signals confirm them. Always use a tight stop when trading counter-trend.
Price then began its rather awkward descent into new lows, forming multiple bear flags back to EMA resistance. Notice the dojis that formed on most of these patterns as price retraced back to the 20 or 50 EMA each time.
Perhaps the best trade of the day was the 12:30 reversal back to confluence resistance – the Cradle Trade – via the 20 and 50 EMA crossover. The target was a measured move down which also corresponded with two other confluence points: The 200 SMA and yesterday’s close (not a bad idea to put on a long trade to play the possible retracement back up… again with a tight stop).
Price floundered about this level before breaking sharply lower out of consolidation into the 3:00 hour.
Price ended the day on yet another large-scale bear flag into new lows.
I suggest printing off a copy of today’s intraday action – what an interesting day it was!
Corey Rosenbloom
Afraid to Trade.com
Corey,
As you say …. an awkward day. Sometimes the stops,the stress and the commissions are draining
As well as trading the 5 min time frame it is often good to have a ‘day trade’. ie sell the prev days high with a stop and walk away ….come back for the close.
Good to see the silver 50% Fib worked. Keep it simple !!
I never understand Three Push pattern. What is the different between Three Push pattern on your chart with the first 3 bear flags? The first 3 bear flags look like a three push down pattern to me. In fact we had a four push pattern yet there are no reversal.
Corey, I have a question regarding the filling gaps; especially these days we have like bad news in pre-open, futures are down; at the open, even there is a powerful trend down, people wish at all price to see those gaps filled. I mean WHY? What’s the point with this “gap filling”? Is it like because the theory says so, that the gaps need to be filled so robots are buying? thx
Reggie,
haha I wish it were that simple. I do know people who trade only off yesterday’s high and low and some of them do well. I like a little more action than that.
But you certainly don’t want too much action. Balance is key in trading.
I’m working on a page – not done yet – that describes the Three Push:
http://tinyurl.com/cu4482
Ultimately, the hallmark is a triple swing negative (or positive) momentum divergence that accompanies three roughly symmetrical price pulses.
Technically, the afternoon bear flags were *not* Three Pushes because each flag formed a new momentum low. Under the principle “momentum precedes price,” this clued you in that odds favored that the actual price low was yet to come. That’s the purpose of a bear flag as well – sans momentum indicator.
Anon,
There’s so much to say about that.
Perhaps the strategy is *just* that popular or widespread. Remember price action is the direct result of supply and demand imbalance, no matter how weird or nonsensical they might seem. Demand overcomes supply? Price will rise.
Maybe funds see value in gaps, maybe it is algorithmic trading (after all, gap fading strategies are some of the easiest for anyone to program – you can do it in a few hours or less with TradeStation).
Perhaps the gap ‘overshoots’ perceived fair value.
I don’t know. I’d love to look into this more though.
Corey,
I wasn’t trying to play Harry Hindsight !
A single separate trade for the day CAN be a useful weapon when the price action from the 5 min chart creates too many stops
cheers
Reggie
haha Well I feel there’s very valuable info in studying the intraday charts and calling out perfect trades so we ingrain them into our mind.
I also feel like one can add returns and limit risk through playing small pieces of a move, provided one has to overcome the increased commissions/etc.
Great intraday analysis Corey. It provides great reinforcement. Thanks.