Here’s One Way You Could Have Traded This Morning’s Action
Reversal trades can take many different
forms. During the first hour of trade, one of the more popular and consistent
patterns that is able to take advantage of emotional Opening
Reversals, is the Trap Door. By itself, the pattern on the intraday chart
usually shows a situation where one side, either buyers or sellers, have
decided to act in unison, consequently sending the stock into a parabolic type
situation.
It’s after the herd is done licking their
wounds, that the Trap Door looks to define entries into the product, as it
reverses its early emotional direction. With the emotional “wrong way crowd”
out of the way, the stock is now free to move in the other direction. When the
Trap Door occurs against a technical picture that supports a case for entry,
such as a confluence of moving averages, volatility bands, and / or Fibonacci
price levels, then we have a situation that demands looking for entry.
09:58:06
Intraday
Setup Alert
The Dow Industrials ETF (DIA)
is trading off more than 1.75 points. The early action has the index proxy
testing the 1.5 Volatility Band, as well as the 50% Fibonacci retracement level.
Potential triggers off of this zone would include Trap Door Opening
Reversal setups. The DIAs are changing hands at 79.75.
10:15:12
Intraday
Update
The DIA is now triggering out of a Trap Door, off
approximately the 2 Volatility Band level. Today’s intraday action has it
penetrating the 50% Fibonacci support level from the March lows. The DIAs are
down 2 points at 79.55.
With this morning’s gap opening lower, there was
plenty of opportunity to take advantage of Trap Door entries. I tend to
concentrate on the ETFs in these situations when the overall market is weak.
Sometimes there are better moves in individual equity products, but you don’t
have to contend with company-specific news that might thwart the individual
stocks move with the broader market.
Besides, when the move lower is basically a case
of general market pessimism, “it’s too easy” to concentrate in products (ETFs
and HOLDRs), guaranteed to participate in a move higher, if the market averages
reverse course off of key technical levels, such as the case today.