SPY Double Dual Divergence Reversal Day

Feb 10, 2010: 7:31 PM CST

I always enjoy showing clear examples of trading concepts such as divergences, and today gave two solid examples of the dual Momentum and TICK divergences preceding intraday price reversals.

In fact, the absolute low and high of the session was formed with such a dual divergence.

Let’s take a look at this important concept:


(Click for full-size image)

We’re seeing the SPY 2-min chart which would be very similar in structure to the @ES Futures (normally I would show the 1-min chart, but the 2-min chart showed the concept clearer).

Under that, I have the 3/10 Oscillator and in the lowest panel, the NYSE TICK.

The main idea is that major ‘dual’ divergences (in both the momentum oscillator and the market internal TICK) can precede price reversals, and many times (though of course not always – that would be too easy) absolute intraday price highs and lows.

While catching the absolute high and low are certainly difficult – few traders do it – it is important to observe a key divergence and possible reversal as soon as possible.

Why?

Seeing this might prevent you from trying to short-sell any retracement up after a key dual positive divergence, and might prevent you from buying a retracement down after a dual negative divergence.

Aggressive traders would seek to put on positions as close to the divergence reversal levels as possible, while conservative traders should interpret them as potential trend turners and be prepared to act accordingly – meaning exit any existing positions with profits into divergences.

These are some of the concepts, set-ups, and lessons I cover in each day’s Idealized Trades Report.

You might not follow oscillator divergences as closely, but you certainly need to pay attention when you observe a price divergence with a key market internal such as the TICK.

Corey Rosenbloom, CMT
Afraid to Trade

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

5 Comments

5 Responses to “SPY Double Dual Divergence Reversal Day”

  1. Diggy | Forexhabits.com Says:

    Hey Corey!
    I'm learning a lot from your posts, you have many different methods that I haven't used yet and it's always good to learn from a great trader!

    I personally think that the SP500 won't get above 1085 and after this little bounce or consolidation it should head back to the 1040 low and probably break down through that.

    Cheers!
    Diggy

  2. terlyn Says:

    I see a triangle formed on the SPY over the last 5 days, and we are near the apex.

  3. Diggy | Forexhabits.com Says:

    Hey Corey!
    I'm learning a lot from your posts, you have many different methods that I haven't used yet and it's always good to learn from a great trader!

    I personally think that the SP500 won't get above 1085 and after this little bounce or consolidation it should head back to the 1040 low and probably break down through that.

    Cheers!
    Diggy

  4. terlyn Says:

    I see a triangle formed on the SPY over the last 5 days, and we are near the apex.

  5. Intraday Rounded Reversal and Divergences Example Feb 22 | Afraid to Trade.com Blog Says:

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