With the day’s action complete, let’s look at the key points you could have added to a core position, or traded for quick scalp profits during the highly expected downswing in the market today:
First, there was a prevailing bearish bias going into the day from the structure of the daily chart on the Indexes (failing at resistance, forming dojis/shooting stars, prolonged up-swing, etc). This should have clued you in to higher than normal expectation for a potential trend day or at least some sort of continuation of the selling we experienced Monday.
With that bias, it was your task to find high probability, low-risk trade ideas that allowed you to participate in the sell-swing with conviction or perhaps a larger than normal scalp position.
The first such ‘ideal’ trade came around 10:30 with price making a new momentum low and price retracing gently to a confluence of resistance via the 20 and 50 period moving averages. The doji at these levels set up a powerful clue that odds favored lower prices, which set-up a low-risk trade.
Price formed a second new momentum low (and new daily price low) at 11:00 and formed a counter-rally back up to moving average resistance (which formed a bear flag style pattern). The perfect bearish move didn’t form until later than expected, and price actually rallied unexpectedly up to the falling 50 period moving average which psyched out many traders. I recommend placing stops just beyond the 50 period average in trend days, and my core stop was threatened, but not triggered, which wasn’t a fun experience, but patience paid off.
You never know which swing will go beyond your expectations, and you may not even hold on for a full price swing, but sometimes the market sets up a trade and exceeds your profit target goals, giving a windfall profit. The 2:00 ‘plunge’ was such an occasion. The selling pressure materialized and before long, a dramatic new low formed for the day which was accompanied by a new momentum low as well.
Price then retraced to the 20 period moving average again, with lower prices predicted from the new momentum low which materialized shortly thereafter, yet a positive momentum divergence formed at the new price lows, indicating that selling pressure might be mitigating a bit. This also corresponded with the market close, which was the signal to exit most intraday positions anyway.
Today was an excellent opportunity for active traders, but it takes courage and discipline to take the signals as you interpret them. Print out today’s intraday action and annotate your understanding of price action, indicator signals, and potential trades you might have taken (or actually took). Through repetition of seeing patterns, you will likely gain confidence.