Opportunities from Popped Stops Intraday

Sep 10, 2009: 6:24 PM CST

In following up on a prior post entitled “What Happens when Key Resistance is Broken?” – I thought today’s intraday price activity gave us another excellent example of the “Stop-Pop” Technique and lessons on how to profit from pockets of known stop-losses being ripped from the market.  Let’s look:

I also explained to subscribers of the “Idealized Trades” report (membership info here) this concept would be the expected play today should we break to new highs.  I wrote to pay attention to overhead resistance (prior price highs) but “be prepared to scalp long if resistance fails, which would create another upward burst as bears’ stops are covered” creating an opportunity for quick and easy profit… from pain.

The powerful upward bar as seen on this 15-min chart was in part a result of some of the stop-losses of the short-sellers triggering, which created a “buy to cover” demand, which continued the price move higher.

We’ll have to look closer at the 5-min chart to see when this “short-squeeze” kicked in:

As price crested above resistance at the $104.00 level, a nice triangle consolidation formed which set-up an excellent low-risk long trade with a stop under $103.80.

Notice how volume spiked at 1:00pm and then later just before 2:00 as volatility picked up, and as price made fresh new highs for 2009, it took with it some of the carefully placed stop-losses of the short-sellers.

Generally – and as mentioned in my prior post on resistance being taken out – when an expected and obvious resistance level is taken out (price rises above it), it will first take out the conservative (tightly placed) stop-losses which creates a momentum or impulse effect (or vacuum in the supply/demand equation).

In this case, you had a rush of demand in the market that you could have anticipated using the classic “If/Then” logic that many professional traders do.

“IF price takes out the new highs, THEN it is likely to take out stop-losses which should create a short-term upward burst I can trade.”

The expectation going into today’s trading might have been “on any new price high for 2009, look to see if volume is confirming the price move and if so, scalp aggressively long to capture the upward impulse that is expected.”

Once price broke the $104.30 level, buyers rushed in the market, though there was a quick pullback to EMA support.

At the break to new intraday highs at $104.40, this would have been an ideal spot – if not long already – to trade aggressively in front of the different levels of stop-loss orders that likely were placed at higher and higher levels… which would have translated directly into profits into your account (futures, ETF, etc).

It’s hard to buy (long) into a surging momentum move, but the rule is to get the trade on, and not play conservative in a momentum move that was anticipated and is now occurring.

In this case, we’re essentially trading ‘people’ (their stop-losses and frustration) instead of patterns (risk/reward, flags, triangles, etc).  That’s a very important lesson to learn, and one that often comes through experience.

This is just one concept that made a powerful learning lesson or example in today’s trading – the other was the nice triangle into support.

These charts are part of today’s 7 page “Idealized Trades” report which also takes a look at the 5-min chart in TradeStation (adding insights from the TICK/Market Internals) and 1-min chart (focusing on confirming structure/opportunities as well as highlighting divergences).

I also walk through the S&P 500 Daily chart and 15-min chart.  I walk you through today’s trading day – as above – explaining key opportunities as “teaching moments” you can study, memorize, and apply on the next trading day or the next time these trades/opportunities occur again – it is designed to be an educational resource to build awareness to trade set-ups, intraday structure, and opportunities.

I conclude each report by analyzing the current structure and discussing what to expect for the next trading day based on what happened today.

Membership is $27.00 per month and I would love to have you as a subscriber!  Please visit our new and growing Premium Section for additional information on this useful service.

Corey Rosenbloom, CMT

11 Comments

11 Responses to “Opportunities from Popped Stops Intraday”

  1. tgarfield Says:

    Another great post. I had a similar thought today, but your explanation is much more concise. I had the feeling last night that today would take out stops and that would propel the market. I bought calls near the low and actually sold half of them at the high. I'm bragging, it doesn't always work out this way. From reading your previous posts I was sure there would be a last push up, from the shorts probably not the longs. The longs were selling the shorts some shares. The shorts blame the longs but I think they took the market up.

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  3. reggieperrin Says:

    Stops more likely to be triggered as we are in the build up to 1/4ly options expiry.

    March expiry proved to be the low

    Now all the September call/vol sellers are having to cover their gamma on the way up

  4. stephen92109 Says:

    how do you scan for such a set-up and using what software?
    new to your site and enjoy your superb analysis.

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  6. preparedinvestor Says:

    The 15 min chart shows that, the trend for the day is pretty much set in the first hour of the day. There is a spike at the beginning or at the end of the day.

    thanks

  7. preparedinvestor Says:

    The 15 min chart shows that, the trend for the day is pretty much set in the first hour of the day. There is a spike at the beginning and/or at the end of the day.

    thanks

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