You never know what you're going to get during the day, but as time goes by the market begins to tell you.
Starting with the SPY gap down this morning (of 0.5%), the low of the day (LOD) was established at (one of) the previous day's support levels ($106.05) and after 6minutes of consolidation we broke higher. A good measure of whether we might expect a gap fill or just a weak handed attempt at the fill is to snap a Fibonacci retracement line from the Previuos day's close (PDC) and the open low (vice versa in a gap up). Once price broke (and closed strongly) above the 61.8% retracement from these levels we have to assume that the Risk:Reward better favors a long entry to fill the gap. Also, remember the strategy for scalping long on a gap-down that returns to the PDC?
Besides, it's Friday morning, how many traders just want to get a nut in their pocket and take the later afternoon off if we end up range-bound? Why not buy that gap-fill entry on larger size, take 1/2 to 3/4 at the PDC (remaining position at higher Fib. extensions) and start the morning profitable? And it doesn't hurt to have the Vix and TICK trending in your favor.
45-minutes into the day and traders then begin to realize that profits have been taken (is that a nut in your pocket? ;) and this isn't shaping up to be a trend day so far. We're now back to the PDC and TICK is becomming more and more negative.We so far had a nice TICK divergence that either got you out of your initial long position, or got you into a short position (if for nothing else, a scalp back to PDC). So, we sold off in a higher low that was also highlighted with a TICK divergence and we could have even reversed and gotten long for yet another test at that PDC!
We notice by now (and for the rest of the afternoon) that internals are mixed, so we should be thinking "range-bound" and "scalping." We should be thinking "fade" the extremes. By "internals" I mean comparative readings of the Advancing/Declining Issues, Up/Down Volume, TICK, VIX, etc.
The arrows circled throughout this chart highlight entries you could have taken which corresponded with TICK divergences (volume divergences as well). A number of these entry arrows are actually little flag setups, (can you see the flags?? those initial pushes followed by lack of interest in the opposite direction) While a number of the exits were based on moving average support on the higher time frame.At any rate, we slowly creep up in an ever narrowing channel (wedge). Remember what I said earlier about trading for a gap-fill when price begins to work above the 61.8% retracement? How many stops are overhead that could squeeze us up even fruther? Well, we're nearly at that higher probability upside trade, as measured from previous highs and the most recent swing lows:The daily is close to forming a right shoulder, but these H&S patterns were a dime-a-dozen in '08-'09
This week ended in a Harami candle pattern. Next week will be interesting!
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
I am always open to questions, comments, or suggestions on how to improve this blog.