Here’s Another Kind Of Opening Reversal To Look For
Opening Reversals can be a powerful way
to catch a new trend, especially if you’re fortunate enough to find one that’s
setting up from the prior day. In yesterday’s trade Qualcomm
(
QCOM |
Quote |
Chart |
News |
PowerRating) had
notched a wide range bar down into a potential price support zone based on prior
lows from mid March. By the time I started to see a potential reversal
confirming support, it was already late in the trading day, so the only
appropriate action for me was to keep it on the radar for the next
day’s trade.
With the broader market poised to gap
higher on general market “enthusiasm,” I knew the trade entry out of
last night’s closing pattern would, more likely than not, be too far away from
price supports to chase, as a long, off of the opening bell. Furthermore, with
the gap, there might be some high probability Opening
Reversals to focus on from the sell side, once price patterns triggered off
of Volatility Bands, EMAs, and/or Fibonacci resistance levels.
Sure enough, Qualcomm followed the
“herd,” gapping higher by about a quarter. Technically speaking, this
is within the price parameters that I consider for entering a trade, but in this
case, I was willing to sacrifice a long entry based on the higher probability
trade of searching for shorts in other products. I was still only monitoring QCOM’s progress at this time.
The opportunity to trade Qualcomm finally
presented itself in the form of another type of Opening Reversal. Most people
look at ORs as a way to gain entry by fading the direction of the initial gap.
When the gap is testing technical supports, or resistance levels, this is
usually the high probability way to play this strategy. But sometimes an Opening
Reversal can also be a continuation trade.
This morning in the TM chat room, I pointed out
just such a trade in Qualcomm
(
QCOM |
Quote |
Chart |
News |
PowerRating).
With the gap up insignificant as far as price
movement, as well as the fact that I had already established background evidence
for initiating longs in the prior session, I was ready for any potential buy
entries that might appear after the opening of trade. After the 10:00 A.M.
report was released, Qualcomm promptly retested the opening bar, and session
highs. As we all know, the movement following such reports is
notoriously volatile, so while it gave me the heads up to be alert, it wasn’t
until two bars later that the pattern was set. At that time a well-defined entry
was triggered in the direction of today’s Opening Reversal…higher!!