Trading What I See

The first market report I heard this morning talked about the drop in the Chinese markets, and suggested we might be in for a repeat of the February drop. The gap below yesterday’s low might have hinted at that outcome, but in less than 30 minutes we were back inside yesterday’s range. Oops!

A gap outside of yesterday’s range followed by a reversal sets up the Larry Williams Oops! pattern. As I said in a commentary last year, I don’t trade the Oops! pattern by itself, but will often use the setup as a trading bias for the rest of the day. I want a very strong signal before I will trade against it. Larry says in Long-Term Secrets to Short-Term Trading that

It is the most reliable of all short-term patterns I have researched and traded.

Today was an example of the setup’s power, and the reason for passing any possible short setups today.

After the Oops! pattern triggered (entering yesterday’s range) price completed a 78% Fibonacci pullback of the morning drop. Then it made a 50% retracement of the rally and couldn’t penetrate yesterday’s low. That bounce from support at the 50% level, combined with an upward bias, would be good for an entry at the first green bar for a rally to yesterday’s high.

The mid-day sideways pattern could have been seen as a Test of Top or perhaps even a Spring setup. But Don’t Bet Against Larry. His statistical research is excellent, and I would need a much clearer setup to consider a short here. The Oops! is a longer term pattern than my normal trading, so I would consider a trade against it as counter-trend.

One more 50% pullback to the support of a previous pivot and the market rallies into the close. One of the reasons the Oops! pattern works is because many traders get caught on the wrong side of the market. As price keeps rising, more and more of these traders finally give up and cover their shorts resulting in a day with no pullback greater than 50%. Thanks, Larry.

Larry Williams: Long-Term Secrets to Short-Term Trading