Up Down Up

Jan 9, 2008: 5:43 PM CST

Today’s intraday action was quite nauseating, I thought, in terms of the early swing up, mid-day swing down, and then strong rally into the close. It made for an interesting chart, but also made many traders nautious.

First, let’s pull the perspective back to the daily chart and then drill down:

  • New Momentum Low
  • New Closing Price Low
  • Extended swing down (ready for retracement swing up)
  • Supposed break of descending triangle
  • Daily chart in confirmed Downtrend

I’ve heard so much about the Descending Triangle break that I was beginning to get suspicious if it would “work” or not, especially provided the extreme over-sold nature of the market right now and the fact that “all eyes” were on the break of key support.

Usually the market will behave in the way to confuse and hurt the most people, and to do so it would have to go up to throw all those sellers and “new shorts” off.

From what I see, I think a counterswing up is due to retest the declining moving averages near $130 (Dow 13,000) before potentially continuing lower, if that is indeed the market’s chosen course. But folks, right here right now is NOT the most ideal or opportune place to “get short” the market.

If you just have to get short, wait for a retest or upswing and short-sell into strength, rather than weakness.

Anyway, let’s look at the fun but confusing intra-day price action that led me to take a couple of unnecessary losses today:

I’ve circled the areas that penetrated natural resistance zones and most likely triggered some stops.

Typically, we can expect the market to respect its key moving averages more, and not exhibit multiple patterns of “rinse and wash” tactics above known resistance (or support).

Traders – like myself – who place stops a bit too close to entry are nipped away when this even occurs. Stops honestly should have been placed above the declining 50 period moving average on each subsequent upward ‘test’ of the declining 20 period 5-minute moving average (I like to short-sell retracements to this key moving average when a downtrend is in effect).

What really ripped the lips off intraday traders was the “woosh” rally into the close, where the market exhibited strength and swung 200+ Dow Points ($2.00 of DIA).

Needless to say, today was fun, but frustrating.

Oh, well. There’s always tomorrow, right?

3 Comments

3 Responses to “Up Down Up”

  1. anatrader Says:

    Hi Corey

    Please ignore my first comment, I did not say what I meant.

  2. anatrader Says:

    Corey

    Triangles are tricky affairs especially if they are change in trend patterns. To solve this problem my mentor laid down some very specific rules for triangle change in trend patterns; he also laid down rules for horizontal patterns. For example for change in trend triangles, he called them Diagonal Terminals or Expanding Terminals.

    In a Diagonal Terminal, the Apex either slopes up or down in the direction of the trend. In DT’s there also is symmetry between wave-2 and w-4 in time. Once w-5 (or e) forms, a rapid move occurs against the prevailing trend.

    A good exposition is in the Wiley 2008 version of The Nature of Trends: Strategies and Concepts for successful investing and trading by Ray Barros which can be found purchased at Amazon.

    You can also read the review of the book at :

    http://www.tradingsuccess.com/blog/

    find the link to Amazon.com for the book.

  3. anatrader Says:

    Corey

    On another note, I see you also pose various scenarios when preparing your trades, and you may want to compare such at

    http://tradingsuccess.com/blog/