Thursday’s Most Perfect Trend Day Ever

Mar 12, 2009: 9:07 PM CST

Granted – to be a “Perfect” Trend Day, I would have liked to have seen a strong opening gap to the upside (instead of an intial push down) but after that push completed and price broke back above the intraday EMAs, then the remaining action could be validly described as “The Most Perfect Trend Day Ever!”

Words would degrade the beauty of the sustained trend action of the day.

Price supported on every single test of the rising 20 EMA, and price formed the ideal “Railroad Tracks” pattern all the way into the close.

Once you suspect we have a trend day in force (admittedly, it took me until just before noon before I figured all the pieces had fallen into place), trading becomes simple (mechanically – but psychologically very difficult since we’re so used to being in ‘fade’ or retracement mode).

Buy any pullback to the rising 20 EMA and trail a stop beneath the rising 50 EMA.  That’s overly simplistic of course, but it works just as well if not better than complex methodologies in my opinion.  Trend Days are special occurrences where a new set of rules are needed.

Throw off oscillators and most indicators (they give false signals like false divergences and false overbought readings) and pay closer attention to moving averages (you don’t have to use the 20 and 50 – you can use your own combination) for entry and trade management signals.

I just wanted to do a quick intraday post highlighting the beauty of Thursday’s intraday price action.

Corey Rosenbloom
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade
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Comments
  • Jeremy,

    Technically, no, if we swung back down to test the November lows from here, it would satisfy the requirement for a truncated Wave 5 so W5 doesn't have to go beneath the recent lows but obviously it would 'look' better (form) if it did.

    If the Financials get stronger, then we should expect a sustained counter-rally that may lead to something else, but we'll have plenty of time to figure out if it's the real thing or just another retracement swing up.
  • JCM,

    You're on the right page. It's important to have two or three possible Elliott Counts (alternates) to be better prepared and not get caught flat-footed.

    I'm still debating whether we're in the Major 3 or have finished it.

    I'll try to count and put up a weekend review that updates us to the two main possibilities.
  • FOREX,

    That's a good idea - those are major variables that can affect global markets.
  • Anon,

    I agree, and I didn't catch on to the structure until just before noon but was able to switch my tactics from retracement mode to trend mode, in which the strategy become buying EMA pullbacks.

    If price reversed, then it reversed and the stop was trailed beneath the 50. But if it didn't, then you wind up with a big win.

    You have to anticipate structure as best you can and then trade accordingly. If you're wrong, or if price reverses, your stop will take care of you.
  • Jeffrey,

    Good point! Combining the larger structure into play would have made for a nicer move. I was looking for a possible down-move (off yesterday's doji) early on so the initial rally caught me by surprise and then I had to shift my view mid-day. Could have participated in more of the trend day if so.

    Good call!

    No, I'm not watching your trades :)
  • Munchi,

    I'll try to update the larger scale Elliott count this weekend.

    Feel free to email me again to keep in touch - there's really no easy answer other than taking smaller positions until you feel comfortable and then raise the size as you develop coping tactics.
  • jeremy
    It looks likely that the Dow will return to the November low minumum, 7580 DJI and may falter at resistance 8000.

    Just wondering if it reached these levels does it invalidate a Fractual 5 wave capitulation?

    The Banks and Oil seem to be making this rally have greater breadth, but still too high on a adjusted Shiller PE basis.
  • JCM
    I am a complete novice with EW, but is it possible we are looking at the beginning of a much larger corrective wave on the S&P 500 index? I am thinking of 2 possible counts:

    First, we are rallying off the bottom of a wave 3 down that went from the wave 2 peak at 1440 to the recent low of 667. This rally would therefore be wave 4.

    Or second, we are rallying off the bottom of a wave 5 completed impulse that started at 1576 in the fall of 2007. This rally would therefore be the start of a corrective wave.

    If its option 1, then the 38%-50%-62% Fib retracement levels are 961-1054-1147. If option 2, the levels are 1012-1122-1230.

    Either way, it looks like the potential for a rally to 1000 is more likely than most people would seem to expect.

    There is always the possibility I am completely wrong. This is the first time I have ever tried to calculate Fib retracements. Please correct me/call me out/tell me what I've missed!
  • I have one additional thing that I do each week. As an individual who resides outside of the countries whose currencies are traded in the FOREX market, I always check to see if there are any (bank) holidays for the trading week. This gives me an idea of what to expect in terms of volume and price action for those sessions. The major ones are US, UK and Japan.


    http://www.forexfreedownload.com
  • Anonymous
    Corey, it does look the most perfect trend day ever, but only after the fact, because, as it was happening, it was not obvious that it would turn out like it did.

    In fact, throughout its move up, there was a constant possibility of it turning around at any time. It also encountered many resistance levels and, at each resistance level, there was a fight between between the bulls and the bears with uncertain outcome. Moreover, moving average lines are not a always a good support because they do get broken all the time.

    In short, if trend continuation was so obvious, trading could be a lot easier than it actually is. I am sure more traders must have missed today's trend than those who rode it. I, for one, certainly missed it, besides even trying to fade it.
  • LOL were u looking at my trades? those last 3 green arrows were where I bought :) Just kidding, u weren't looking i hope! BUt good day nontheless. As for the opening gap u wanted...i preferred today's action from a 2 day perspective..double bottom taking today's low with yestreday. shook off a little overbought-ness and setup for the beauty trend rest of teh day!
  • Anonymous
    Hi Cory, I'm curious to hear about your EW count at this moment. Since we blasted through the 740 resitence level, what is in the horizon? BTW I've been following you since the beginning of the year. We had briefly chat about some psychology behind trading. I was the one that couldn't cut a lossing trade. Then today i cut a trade too early. I haven't explored your site as much. Do you have materials on risk management and willing to accept losing trades.. ? Munchi
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