March 28 5min DIA chart

Mar 29, 2007: 12:02 AM CST

Today was an active day in the equity markets!  The news of the day was Chairman Bernake’s testimony which rattled investors early this morning.  Remember, news is difficult to predict, but the momentum action creates a predictable trade idea with high probabilities of success.  Today was no different.  We had a test of the most recent swing-low just after the retracement after the new momentum and price low made early which set up an “Impulse Sell” trade.

Also, note the divergence trades which could have been aggressively entered both on the long and the short side of the market.

Today’s plays were most profitable from a “Momentum Divergence” standpoint.  In other words, even though price looked grim, momentum that underlined the price showed a different story.

 

 The arrows indicate Impulse Buys or Impulse Sells which both would have achieved the objective (most recent swing high only).  I did not annotate the “divergence” plays which would have yielded more profit, actually.  Remember, divergence trades are entered when price makes a new low (or tests a recent low) yet momentum (compared to the price swing) makes a higher low.  The trade is entered when you view this divergence and you must keep a tight stop.  The target is just beyond the most recent swing high or low, and the trade is played for a scalp only, not a trend change.

Let it be noted that today’s play is working out from a newly initiated lower swing on the daily charts, and so the bias for the day should have been to the short side.  Swing traders should have already entered a short position when the market was recently overextended to the upside and ready for a corrective swing down to begin.

Always analyze higher time frames to determine market structure and swing patterns before entering the day-trading and scalping arena.  Let this ‘bias’ guide your trades for the day and manage risk.

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