Trading What I See

If you compare today’s chart with yesterday you’ll see almost the same pattern. There was a gap up followed by a rally and an A-B-C pullback that bounced from a natural support level (previous high instead of close.)

The pullback was 50% instead of 78%, but the same A-B-C Measured Move was there, and inside the larger moves there were smaller down-up-down patterns. And once again the parallel channel defined the turning point. At a quick glance the two day’s trading looks about the same.

The real difference was how to anticipate the intraday top. Yesterday it was by using a trendline extension on the 15 minute chart. Another way is by marking the external Fibonacci retracements of the first pullback in a move.

I check for external Fibonacci retracements every time a pivot is exceeded, but this is a special case. Often in an extended move, the first well-defined pullback will be retraced by 262%. Panic moves will shoot through the 262% level, but will usually run out of steam at 423%.

Sometimes these will lead to complete reversals; other times just to an A-B-C correction. As is often the case, this is not a trading setup by itself — just a great place to look for one.