Friday was a monumental day in so many ways, primarily because the S&P 500 closed at a multi-year low.  Let’s step inside that intraday structure and see how the day developed and how we might have traded within the intraday timeframe.

DIA 5-min chart:

I’ll be honest – this was a very difficult day (at least for me) to trade.  The initial gap (and breaking of the November low on the S&P 500) led you to believe we could have a powerful trend day down (as bulls threw in the towel) so it made sense to try to short any sort of pullback to the 20 EMA, namely that of the 10:00 and 11:00 hour – neither of which gave satisfaction.

Next, the gap was slightly beyond the $1.00 threshold which meant the gap became a ‘large-scale’ gap and thus less likely to fade… but it wound up fading.

So as price made it back to fill the gap and find resistance at yesterday’s close, those were also excellent shorting opportunities, but price remained flat.  Some investors might have figured “bulls pushed prices back above the lows so maybe the so-called “Plunge Protection Team” stepped in and I should be buying/getting long.”  That failed as prices broke to new lows at the end of the day.

There was even a head-fake that trapped both sellers at 1:30 (triggering shorts) and buyers as the price turned quickly positive on the day (at 2:00).

The point is – this day whipped everyone around up and down and was quite difficult.

Oh, in hindsight, the picture is abundantly clear and the structure is obvious – we had an initial gap down which was gently filled and supply gently overtook demand as the day turned down, forming a type of “Rounded Reversal.”

I figured out the structure with 30 minutes to go in the trading day and managed to capture the end-of-day bear flag short-sell (into EMA resistance), but otherwise was chopped around as price consolidated and formed its range for the day.

And that’s exactly why I do these end-of-day “Idealized Trades” posts – because the more you work with price structure and highlight (to yourself) key trade set-ups, the more you’ll internalize these patterns, see the structure developing during the day, and act in real-time upon these opportunities.  I highly encourage you all (who trade intraday) to do the same in your end-of-day reviews.

Corey Rosenbloom
Afraid to Trade.com