Nice Trend Day Up – Good Way to End 2008

Dec 31, 2008: 8:19 PM CST

2008 is finally behind us and the year ended on a positive note – a nice, solid trend day to the upside.  Let’s look at the DIA intraday structure to reflect on this pleasant picture.

DIA 5-min chart Dec 31, 2008:

This is what a trend day should be – except for the close, that is.

We had a nice run from the start the resulted in a “Three Push” reversal pattern that resulted only in a retracement to the rising 50 period EMA.  Until that point, any pullback was a safe buy-zone, while the 50 remained the “last line of defense” for the bulls and also served as a support buy-zone.

Price bounced sharply off the second test of the rising 50 EMA to tap new intraday highs before forming more choppy retracements back to the rising 20 EMA into additional new price highs around 3:30.

The only thing that tarnished today’s trend day move was the last 30 minutes of trading, where price formed a bearish shooting star at the upper Bollinger Band on a negative momentum divergence which preceded price reversing sharply end the day just beneath the 50 EMA.  Day traders should exit at or just prior to the close each day.

A few readers have commented on the appearance of negative momentum divergences on Trend Days and my resonse is generally to throw all forms of indicators (except moving averages) off the charts on expected trend days because they will (virtually) all give false signals.  Oscillators (Stochastic and RSI) will remain overbought all day and other indicators will be skewed as well, flashing sell signals as price continues to eek its way higher.

Look at the 3/10 Oscillator for an example.  As price continued its journey making newer highs all day, the momentum oscillator disconfirmed all highs as the day progressed.  There’s no point in trying to interpret it – sometimes it’s just best to turn off the indicators and focus your analysis strictly on one question?

“Is Price above or testing the 20 (and/or 50) period EMA?”

If we’re above it and the averages are in the most bullish orientation, then buy all pullbacks.

If we slip below it and close beneath it, take your stops and realize the trend day has ended.

Don’t try to get fancy – keep it as simple as possible.  Traders can stand to make the bulk of their monthly profits on trend days.

Continue to find additional insights in today’s price data and, even though today marks the end of 2008, the trading still continues each day.

Have a great time tonight!

Corey Rosenbloom
Afraid to Trade.com

Keep up to date and receive updates from Afraid to Trade now on Twitter:  http://twitter.com/afraidtotrade

5 Comments

5 Responses to “Nice Trend Day Up – Good Way to End 2008”

  1. Anonymous Says:

    Happy New Years Cory.. when you get a chance, can you revise your ew count for $spx.x thanks

  2. Corey Rosenbloom Says:

    You too!

    Looks like we’re still in fractal 4 of larger 3 – we’re in a triangle consolidation.

    I’ll try to update soon or when we breakout of the consolidation.

  3. Anonymous Says:

    Corey, Congratulations on maintaining your very high quality blog. You are doing great social service and I hope it will also reap great benefit for you.

    Happy New Year!

    I often miss the trend. Initially, I am too doubtful and don’t trust the breakout. Later, as the trend builds up, I am too afraid to enter because of fear of a pullback. The end result is that I miss the entire trend. In fact, I am constantly focused on the trend reversal and even go against the trend too early, get out too early, lose money and then miss the entire reversal. Do you think that this is a common behavior, despite the best of charts and indicators that we look at?

    In fact, the only time I make some money is if I just wait, often a long wait, for my position, long or short, to become profitable, despite whatever the charts are saying! My attempts at market timing fail often, except in a trading range market, when the oscillators work fine. However, perseverance, even if caught against a trend, seems to pay off. I know this is not a good way to trade but putting the chart knowledge into practice is not easy.

  4. Corey Rosenbloom Says:

    Anon,

    Happy New Year to you as well! Thank you for reading.

    Ha – I would say that’s extremely common behavior, a cycle that I’ve repeated many times. I honestly think we all need to go through and feel these emotions deeply (and make mistakes) before we can become professional traders. It’s only through making mistakes and learning from then that we cross the amateur/professional boundary and start ‘fading’ the crowd because we have a handle on what they’re thinking because we used to think it or trade that way. People as a whole repeat the same mistakes, which is a basic foundation for successful trading – as harsh as that may seem.

    Hmm. I’m not sure that’s a great strategy – waiting for the position to turn profitable regardless of indicators. It almost seems random. I would suggest learning to distinguish market conditions – trend, range, climax, news-driven – that are best suited for the indicators you’ve chosen and only trade when the market aligns to the period when your indicators work best – for example, oscillators in rangebound or moving averages in trend – and exclude all else.

  5. Dominick Says:

    Hello Corey. I understand the other market conditions but could you explain the “Climax” one. Also, in a nutshell answer, could you advise why the the indicators do not work on a trend day? Is it how they are caculated? If it is to long to post could you just point out a resource or two where I could read up on it. Thanks.