Trend Day down in Dow Jones

Jan 2, 2008: 6:49 PM CST

Today’s action was a classic example of the “Trend Day” concept, where price swings carry the index value lower, and up-swings become key opportunities to ‘get short’ or re-establish a core position.

DIA (Dow Jones ETF) 5-minute chart:

We had a large momentum impulse to the downside to start the day, and the failure of price to retrace (give back) this impulse set the stage that the odds favored a rare ‘trend day’ over a consolidation or other type of day.

Usually, pullbacks (retracements) to the 20 period moving average set up key shorting opportunities with minimal risk, but price was so weak for most of the day that it could never fully reach the 20 period MA.

The quick ‘volume/price burst’ at 2:00 Eastern allowed price to retrace to the 50 period moving average before selling off.

Momentum divergences (not shown) were apparent prior to the upswing in price as sellers were finding it more difficult to drive prices lower.

Run your own analytics and annotate the day’s chart your own way to gain better insights as to trend days and what they mean.

Early identification of a trend day can lead to significant profits, especially if you day trade using futures or leverage.

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