Inside an Inside Day
If you ignore the trading around this morning’s gap, today was not only an Inside Day, but actually restricted its range to the area of yesterday’s 10 minute whipsaw surrounding the Fed Announcement. Just before the announcement the market had dropped to point “X.” Just after the announcement it rallied to point “A” and reversed. By 7:00 today (Pacific) we were back inside that range and never escaped.
Before the market opened this morning I was watching pre-market trading as price tried to cross that longer term blue downtrend line. It didn’t happen. The reversal from that level wasn’t surprising, since point “C” was also a Measured Move from yesterday’s action. The distance from X to A is duplicated by the distance from B to C.
When several resistance areas coincide with an opening gap, there is a good chance of an immediate failure. Notice also that volume is actually lower than at the Fed Announcement. I would have considered a short sale there, but it lacked the divergence I wanted.
Although there were several reversals at key Fibonacci retracement levels, when I see what looks like a narrow range day, I want clear multiple signals to take a trade. I couldn’t find any I liked, so I spent the day watching.
I consider this type of day a way to practice charting in real time. Often there will be the same characteristic patterns — just on a smaller scale. Since I don’t have to think about entries and exits, I can concentrate on things like how volume acts as price touches Fib levels (red arrows), or the way other markets lead or follow at turning points.
Picking out Fibonacci retracements and extensions is only part of the challenge of trading. These levels are only lines on a chart — the market may react at those points or ignore them. And the only way you can learn to recognize turns as they happen is with screen time. And that’s what I got today.
