Monday’s Intraday Trading Tactics

Aug 18, 2008: 9:43 PM CST

With a semi-trend day behind us and plenty of trading opportunities at hand, let’s look at some of the price structures and idealized trade entries we could have taken now that Monday’s action is complete.

Dow Jones ETF – DIA 5-minute:

First, the day started with a mini-index gap, which was instantly filled for little chance of profit, however this gap was indeed at least $0.20 above yesterday’s close, so it will count as a successful gap fade in the August statistics (compiled at the end of each month).

Price made a new price and momentum low on the day, setting up a potential “Impusle Sell” trade whenever price retraced to the 20 period EMA – or better – a confluence of intraday moving averages.  This confluence occurred as price pulled back in a 45 degree angle around noon, when a classic bear flag style trade developed (or a “Measured Move” as I’m more fond of calling this pattern).

Entry came as price crested to test the 20 or 50 period EMA, and the break beneath any of the dojis (or during the 5-minute doji formation) would have been an excellent short (with patience) with a stop above the key moving averages here.  The trade’s target would have been an equal or “Measured Move” of the prior impulse, or roughly $1.00 (100 Dow points) which was achieved very rapidly after the break of the price consolidation of the flag.

One could have played a retracement back to the 20 period EMA trade, given the three dojis in a row, but such countertrend reversal trades are often very low probability of a big win and offer little more than a scalper’s profit – it’s much better to step aside as price retraces and then look for an area to “get short” which came as price neared the 20 period EMA again and formed a tight doji (red arrow).

Price now formed a momentum divergence, but still it would have been better to step aside (no position) and then wait for a proper short entry again – this time signaled by three dojis in a row (second red arrow).

Price eased its way lower on less downside momentum, and a growing positive momentum divergence developed, which should not have been ignored, and could have been sensed without the use of any indicator (notice price swings narrowing to the downside).

The final ‘short’ trade occurred as price retested the 20 period EMA for the last time before swinging back, forming yet another doji (today seemed like the “Day of the Doji” to me) and then broke to the upside, as hinted by the lengthy and pronounced positive momentum divergence.

All and all, it was a rough day for the market, but we sit cautiously on rising trend channel formed on the daily chart.  Unless there’s a significant down move Tuesday, odds slightly favor upside potential, and a good risk to reward trade long, given a tight stop beneath the trend channel, should it hold – either way, you won’t risk much to find out, and the upside (potentially to $117 to $118) is almost too good to pass up if I do say so myself.

2 Comments

2 Responses to “Monday’s Intraday Trading Tactics”

  1. Tim Says:

    Corey – awesome site. I’ve learned a lot from your blog which I read daily. Just wanted to say thank you.
    Tim

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