WFC presented two base & break trades for me this week. They were slightly different, and as such make for good examples.
On Wednesday WFC gapped up and ran before retracing back to the 20-EMA. The market internals were showing positive momentum in the financial sector, while WFC seemed to be slightly more orderly. The second price thrust brought price just shy of $26 where it receded back to the 20-EMA. It was at this point where price slowly advanced, riding the 20-EMA up into the $26 point. One thing I keep an eye on is the "health" of the 3/10 macd. Notice in this situation where the fast line has recovered the slow line and the histogram is green (positive momentum) following it's previous retrace.
The break of the base was solid, but what followed became more volatile. Notice how Resistance-becomes-Support (RbS), where price broke $26 and then 4-bars later retraced back to this level, and it quickly turned back around. The more violent retrace close to the end of the day had a lot to do with the broad market internals, I was out before this move, but it turned out being a good trade to hold over night as it gapped up on the open of the following day. Next we have Firday's session. Price rallied up to the $26.50 range where selling/profit-taking ensued, bringing price back to the 20-EMA. There was a back-and-forth exchange between this resistance level ($26.50) and the 20-EMA. Notice how the 3/10 macd has a negative momentum bias, I prefer to wait until I see the fast line "recover" the slow line, thereby showing some positive momentum.
Again, we got a solid extension through resistance, and again we got a Resistance-becomes-Support (RbS) example on a high-wave candle briefly before extending higher. Notice how momentum is behind the move (more so than on Wednesday's example) and how the fast line corrects off of (or retraces against) the slow line before continuing higher.
The setups I include on this blog are used in conjunction with the 3/10macd and the criteria I ascribe to it as a way to alert me to an existing condition of price. The key concept to take away from this blog is that I try to anticipate what will happen on the higher time frame by using a faster time frame to trigger the trade setup. I do not trade a "system" I use two indicators to clue me in to price conditions. Please read the Disclaimer located in the sidebar of this site. I can be contacted via email at email@example.com
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