Inside Day
One of my main uses for longer term charts (anything from 15 minute to daily) is to decide how enthusiastic I am about finding trades. If we are in a trend on a longer term chart, I’m actively looking for entries. If we are going sideways, I want to be much more selective in my setups.
Here is a daily chart showing the trading from the first of the year. On Tuesday I used a 15 minute chart to show how two days in a row were mostly confined withing the range of a single bar. Look at the last six days — each day has its high or low (or both) inside the range of the bar created on February 7th. Until we print a bar outside that range I’m assuming a congestion zone.
That doesn’t mean that there won’t be some good setups on a shorter term chart — just that you want several factors in your favor. Today I didn’t see that happen.
We started with a drop to yesterday’s low and bounced with a divergence. But since the Russell couldn’t hold any of yesterday’s gain, it looked to me like we were just staying in a larger congestion zone. The first pullback was a 78% Fibonacci retracement, but it was the exact reverse of the early move yesterday. That setup was close to a breakout — this one is not.
The entire morning had a very narrow range and the afternoon, much like yesterday, was showing weakness with divergences between price and the Stochastic. One trader I know refuses to take any trade inside of the previous day’s range. I certainly don’t go that far, but on a day like today I understand his reasoning.
