There are several types of trend day, some easier to trade than others. Let’s start with the overall picture (15 minute chart), and then look for potential entries on the trading chart.
After the gap opening the market pushed right through the 162% level of a larger A-B-C. Whether measuring external retracements of the first pullback or the “C” leg of an A-B-C, passing the 162% level is where I stop looking for a reversal setup.
The next stop is often the 262% Fibonacci level, and that’s where we reversed at the end of the day. We’re back at the top of the daily rectangle, where we reversed four days ago. Was this a Spring reversal? We exceeded the top price from the rectangle by one tick.
I would be cautious of a gap up tomorrow that quickly reversed, but a continuation of the closing pullback followed by an upside breakout with volume could head for the rectangle target over 30 points higher.
Did I just say we could go either way? Don’t I always? Let’s see what happens in the morning.
Now, how could you have caught this move? First remember the quote from Victor Sperandeo that I’ve used often.
If there is a gap, and it is going to reverse, it will do so 10 to 15 minutes after the opening 95 percent of the time.
By the first pullback this morning we had exceeded a potential 162% A-B-C which means you should expect continuation. We had also exceeded Trader Vic’s 15 minutes without a reversal. Two reasons to look for upside action, so what we needed was a usable entry.
For entries in a trend I usually look for a bounce off the bottom of a parallel trend channel, or a pullback to a Fibonacci level measured from a major pivot. It didn’t take very long to realize that neither of these two methods would work this morning. So instead, I used the opening price to start my measurements.
From “A” to “B” was a 62% retracement, but the next three hours progressed so slowly it made the trade seem like a mistake. Without any good basing points my procedure is to gradually move my stop up with each new pivot (yellow lines), with an exit shortly after “C=100%.”
After that slow 5+ point rally, I was surprised by the afternoon move and didn’t even consider an entry. But at least we are out of the sideways action of the last two days. Tomorrow we’ll see what happens with the rectangle.