What a day!  Monday’s (March 9th) intraday price action shows why it’s so important to go back and annotate the structure and “idealized trade set-ups” so you can recognize it quicker as it develops in real time in order to apply the most appropriate trading strategies early.  Let’s step inside Monday’s 5-min DIA action:

Let’s walk through the day step-by-step to pick up on its lessons and trading strategies.

The day opened with a downside gap just at $1.00 in the DIA which put it just on the threshold of successful odds of a fill… but this was perhaps one of the fastest ‘large-scale’ gaps I’ve ever seen fill.  Price filled the gap in about 20 minutes, and formed a doji at yesterday’s close (which often serves as resistance).

Instead of reversing down, price screamed higher and formed a negative momentum divergence and the intraday high (it’s surprising how many highs and lows are formed on divergences).

It seemed the doji at 11:15 which formed at the rising 50 EMA was a good buy – and it was from a risk-reward standpoint – but ultimately price failed to make a significant swing up off that proposed support level, and found resistance at yesterday’s close (which often serves as important support & resistance).

Price then broke above yesterday’s high, triggering thoughts of bullishness, but that wasn’t mean to be either.  We formed a quick as lightning Bear Flag into confluence EMA resistance, but you really only could have caught that if you weren’t taking lunch and were glued to your trading terminal – in hindsight, it looks great but the odds of capturing the profit (and target) in real time were very low.

Price rallied up off the bear flag price projection target and found resistance just above the “Cradle Trade” Zone (which also may have resulted in a stop-loss if you were playing to capture the Cradle).

By now, it became apparent to astute traders that a range had formed and the structure was developing a downward sloping consolidation, or more specifically, two descending parallel trendlines.  It takes four touches (or tests) to confirm a rectangle or parallel trendlines and we finally got that at 2:00 (making the 5th touch valid).

At this point, the trading strategy into the close favored playing the trendlines for support and resistance, which ultimately worked though price closed in the mid-point of the trendlines.

The more you analyze/study intraday structure, the better you’ll be at recognizing the day’s structure (trend day, rounded reversal, range day) as it develops and then adjusting your trading strategy (rely on indicators?  turn off indicators?  which indicators are the best given the proposed structure?) accordingly.

UPDATE: Reader Dominick mentioned a Measured Move (AB=CD) or Bull-Flag pattern and I wanted to show that on the blog.  There were actually two Measured Moves (AB=CD), one being comprised of the other.  Interesting view with all the indicators turned off!  Though I don’t show it, the 2nd AB=CD pattern contains a fractal AB=CD pattern.  The CD leg of the first AB=CD contains its on micro-pattern.  Like Elliott Wave, bear flags and Measured Moves can be fractal in nature.

For ease of mind, you can call all these Bear Flag patterns.

Corey Rosenbloom
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade
Register (free) for the Afraid to Trade.com Blog to stay updated

(Note – odds are I will be switching my intraday focus to the SPY instead of the DIA soon.  Comments/suggestions are welcome)