Intraday Ideal Trades for April 7

Let’s take a quick annotation of today’s DIA action on the 5-minute chart, scanning for ideal trades of the day.

First, the market gapped near over 60 Dow Points, setting up the classic “Fade the Gap” trade. Today’s gap fell about 10 cents (points) short of a full gap fade, but the initial action is to play against the opening gap for a retracement.

Gaps serve as momentum impulses, and reactions often follow impulses, while impulse moves often lead to higher prices. My classic “impulse buy” trade set-ups seeks to capitalize on the concept that “impulse follows impulse” but that there is not an infinite loop.

Nevertheless, the impulse buy trade set up just as price cleared the hurdles of the flattening 20 and 50 period moving averages which failed to serve as resistance. I highlighted the positive pull-back that signaled a ‘buy’ trade just after 11:00am which led to higher prices.

A divergence set-up as price peaked for the day going into 1:00pm and I commented to clients that I felt this zone could be the intraday high due to the following developments:

Price reached the upper Bollinger Band
Price formed a key negative momentum divergence
Price formed long upper (candle) shadows (signs of weakness by the bulls)

You never know which price will be the intraday high or low, but you can look to a confluence of indicators to help raise probabilities in your favor.

Nevertheless, a true trend change came around 1:30 (marked on chart) and price made a lower high and lower low and then broke down through the 50 period moving average.

A short term momentum move down occurred, and we never really got any sort of reaction against this downward trend move until a neat bear-flag (one of my favorite patterns) formed which carried price just above yesterday’s close and beneath key resistance from the 20 period moving average. This bear flag trade reached its target, which happened to coincide with the intraday low before recovering (also notice the positive momentum divergence which occurred at the lowest price of the “measured move” portion).

As always, I recommend annotating your charts with the ideal trades based on your understanding of indicators, price behavior, and market structure. Through time, you will improve your pattern recognition skills which should lead to more profitable trading.