More Divergences and Bollinger Band Trades on a Range Day

Oct 9, 2009: 5:55 PM CST

Like October 7th, Friday’s intraday trading action in the SPY or @ES futures gave us a range day, where the best trades came from ‘fading extremes,’ or particularly, in watching for tests of Bollinger Band extremes on TICK and/or momentum divergences.  I described these tactics in a previous post “Bollinger Bands, Divergences, and Candles on Range Days.”

Let’s take a look at today’s action for insights:


(Click image for full-size)

The basic concept is to use non-correlated strategies to put the odds in your favor, and arrive at “high probability” set-ups that reflect ‘confluences’ across these different strategies.  These also provide smaller stop-losses in relation to the larger targets, giving a nice ‘duality’ of edge to the trade set-up.

Once you feel the day is shaping up to be  a “Range Day” (as opposed to a “Trend Day”), it should clue you in to adopt a certain type of strategy and expectation for price movement, chosen indicators, and trade set-ups.

Without getting too deep, one of those concepts is the notion of “Bollinger Band, Divergences, and Candles” as shown here.

If you ever see a “spike” outside an upper Bollinger Band (standard setting) that forms on a negative momentum (oscillator) or TICK (market internal) divergence, then this is – in my opinion – one of the best trade set-ups to take on range days.

I’m showing three “Back to Back” examples of the concept here throughout the middle part of the trading day.

Once you see this structure setting up, a stop is placed 10 cents (at least 1 @ES points) above the most recent high (or beneath the low) and you are playing for a maximum target of a test of the opposite Bollinger Band… and in the event ANOTHER divergence with reversal candle sets up, then it becomes a “flip and reverse” situation.

This is just one of many lessons I teach and highlight in each day’s educational recaps and summaries in the Idealized Trades reports for subscribers (which also contain expectations and levels to watch on different timeframes for the next trading session).

I encourage you to review each day and perform “efficiency analysis” on your trades and compare your performance to what you perceived was available (now that you’re in a more calm mindset at the end of the trading day).

The more you learn, the more you’ll recognize intraday in the ‘heat of battle’ which could lead to reduced stress and better clarity in real time trading!

Make each day – good or bad – a learning experience!

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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