I wanted to show a mid-afternoon “Best Trade” idea in the market today, which highlighted an internal TICK divergence with a momentum divergence as price filled the morning gap into the resistance area of Friday’s close. Let’s see it:
I wanted to highlight this quickly to show how you could have profited from this very low-risk, high-probability position.
First, with a moderate size overnight gap, the initial “play” is to buy/long to fade the gap and exit at yesterday’s (Friday’s) close, which can be expected to hold as resistance. Remember that an exit signal is not necessarily a “flip and reverse short” signal.
However, in this case, as price pulled up into this zone, we observed a multi-swing Negative Momentum Divergence on the 3/10 oscillator but more importantly, there was aNYSE TICK Divergence as price formed the slight (so far) high of the day at $101.20 (or equivalent 1,007.75 in the @ES futures or other leveraged ETF).
The TICK divergence was more revealing than the momentum divergence, but as price formed two non-confirmations as price tested an expected resistance level, you could have entered short at any point as price began to inch down off $101.20, and especially when price broke the 1-min 50 period EMA.
The stop would have been just beyond $101.20 (perhaps $101.30 or greater) with a target of a test of the morning low (at a minimum) which was exited and achieved as I captured this chart to show you.
Barring any unexpected move up, the price you see here should hold as the high of the day.
This is an example of an explanation of a conceptual set-up that I explain to subscribers every day in the Idealized Trades Summary reports. The goal is to understand these patterns, know what to look for, know how to recognize day structure and opportunities so that you can trade them in real time each day as they repeat and set-up.
Please take a look at the more information page of the new Premium Section of Afraid to Trade for subscription information (at $27.00 per month).
The more you see these patterns each day, the better you’ll be and more confidence you’ll have to trade these set-ups appropriately in real time.
Corey Rosenbloom, CMT Continue Reading…