Self Directed Investor Inc
SDI: "Empowering investors with ideas and education"
Symbol Lookup »  
Topics:ChinaETFsEarningsEconomyEnergyForexGoldIncomeLessonsIdeasTrading

  • Other news: News from PR Newswire
| More

December 4th Lesson in Recognizing and Trading Intraday Trend Reversals

Wed, Dec 5, 2:32 PM ET, by Corey Rosenbloom

December 4th’s intraday trading session provided an intraday reversal opportunity and I wanted to take a moment to review the main lessons in anticipating – in real time – and then trading an intraday stock market reversal.

Let’s review the steps a market tends to take prior to an intraday reversal and then highlight the trading opportunities that present themselves.

Here is the SPY – S&P 500 ETF – on the 5-min intraday frame:

I’m using the SPY as a reference but you could convert the same logic to the @ES futures or any stock or ETF that you trade.

I’m also showing the 20 EMA (green), 50 EMA (blue), the 3/10 Momentum Oscillator, and the NYSE TICK for indicators.

The moving averages provide structure (suggesting retracement strategies while price remains trending under these averages, as in the case of the red highlights and arrows at 11:00am CST and 11:30am CST).

The Momentum Oscillator and the NYSE TICK are used to highlight any divergences with price along with any strong impulse or “kick-off” signals (discussed shortly).

A bullish intraday reversal tends to have three main steps:

  1. Positive Divergences (TICK and/or Momentum)
  2. Strong Impulse up in price which is confirmed by TICK and Momentum (a “Kick-off”)
  3. A firm breakthrough of the 50 period EMA (5-min) or other trendline resistance

While it’s not necessary, if these chart-factors form off a known support level (especially from a higher timeframe or “round number” level like $142), it can increase a trader’s confidence that a reversal may be occurring and thus allow for a more aggressive reversal play.

I labeled these factors on the 1-min chart which helps clarify divergences:

Divergences are common in trending markets (a divergence also took place at 11:30am) but price did not move to step two or step three by breaking the 50p EMA nor creating a Kick-off Signal.

A Kick-off occurs when price is coming off an intraday low and TICK or the Momentum Oscillator push to new swing highs or even new intraday highs (particularly with TICK).

The Kick-off concept is based on the “Sign of Strength” concept from Richard Wyckoff to describe a strong initial impulse off a market low that is often the start of a new short-term trend.

We see TICK push to new intraday highs (the two green dots) at 12:40 and 1:00pm as price is NOT making new intraday highs – it is a sign of strengh that is not revealed in the price alone.

Finally, in conjunction with the Kick-off Signal, price breaks above the 50 EMA (blue) to generate a likely reversal signal.

While it’s important to study the steps a market takes when forming an intraday reversal, one must be able to put these lessons to work in real-time and select one of the main trading strategies, depending on a trader’s experience and aggression (risk-tolerance) level.

Traders often have three specific spots to trade a bullish play with low risk (in case the trend reversal fails):

  • Reversal Trade off Support
  • Initial Breakout above the 50 EMA (or trendline)
  • First Retracement or “Flag” Trade after these steps have occurred.

The most aggressive trade would be buying INTO a support level when divergences are present. This would be the highest risk spot because the trend could continue, and no Kick-off (or breakout) signal has developed.

Some traders prefer the high-risk/high-reward opportunities pure reversal plays allow.

The next spot to enter would be the breakout above the 50 EMA (or associated trendline) which would likely require a resting order above this average.

In this case – and in many others – a Kick-off (push to new intraday highs in Momentum or TICK) occurs almost at the same time that price breaks above the 50 EMA (5-min).

Generally, breakout trades need confirmation from an increase in volume, momentum, or internals to increase the confidence that the trade will be successful (meaning the market actually breaks out and does not reverse back for a trap).

Finally, the safe spot to play a retracement or “flag” trade would be on the first pullback/retracement AFTER price has completed all three steps (divergence, kick-off, 50 EMA break).

In the 5-min chart above, I labeled an “R” for Reversal Trade, a “B” for the Breakout Trade, and “Flag” for the retracement trade.

There are a variety of exit signals, but the most common would be selling (exiting) on a push to a prior resistance target, upper Bollinger, or else exiting on the break of a rising 1-min trendline or the break under a 5-min reversal candle low.

The goal of our two-pronged daily Idealized Trades Report where the first half provides commentaries and lessons like these on the intraday trading action, trading tactics, and broader concepts (narrative) while the second half discusses the higher frame charts to create a game-plan for trading the next session.

Take time each night to learn the lessons from each day’s trading activity (in context of your strategies and how you trade).

Every trading day provides opportunities to learn from price action and improve on your performance so that you can become a better trader each and every day.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter: http://twitter.com/afraidtotrade

Corey's new book The Complete Trading Course (Wiley Finance) is now available!

blog.afraidtotrade.com


SDI Glossary: "Breakout" Definition
SDI Glossary: "price" Definition
SDI Glossary: "Finance" Definition
SDI Glossary: "NYSE" Definition
SDI Glossary: "Retracement" Definition
SDI Glossary: "Support" Definition
SDI Glossary: "TICK" Definition
This Article's Word Cloud:   Corey   Kick   Momentum   Oscillator   Signal   TICK   Trade   above   afraidtotrade   break   breakout   breaks   case   chart   divergences   each   from   have   highs   increase   intraday   lessons   level   main   market   opportunities   play   price   prior   push   retracement   reversal   risk   spot   steps   strategies   tends   that   these   three   time   trade   trader   trading   trend   trendline   when   which   with   would

| More

Aug 28 Sideways Market Update and Stock Scan
Fri, Aug 28, 3:11 PM ET, by Corey Rosenbloom

Yesterday’s relief rally stalled into overhead resistance at the 1,990 target level. What levels are ...

Finally a Bounce Back Reversal for Crude Oil
Fri, Aug 28, 1:31 PM ET, by Corey Rosenbloom

Like stocks, Crude Oil is finally getting a strong bullish bounce. However, unlike stocks, Crude ...

August 27 Big Trend Rally Update and Stock Scan
Thu, Aug 27, 2:31 PM ET, by Corey Rosenbloom

The bounce continued! The relief rally propelled stock prices higher, breaking free from a Triangle ...

New Color Structure and Value Area Reference Chart for SP500
Thu, Aug 27, 11:41 AM ET, by Corey Rosenbloom

During volatile times, it’s often helpful to step back to get a broader, simpler perspective ...

August 26 Bouncing Market Update and Big Stock Scan
Wed, Aug 26, 3:21 PM ET, by Corey Rosenbloom

Eventually this market has to rally, right? We’ll see – continue focusing on our key ...

Today's Midday Update is Very Different than Yesterday's Aug 25
Tue, Aug 25, 2:11 PM ET, by Corey Rosenbloom

While yesterday was another powerful sell (liquidation) session in the market, today sparks a sudden ...

Third Biggest and Second Longest SPX Peak to Trough Pullback Since March 2009
Mon, Aug 24, 8:51 PM ET, by Bill Luby

Nary a pullback goes by without at least a handful of requests to update my ...

Last Two Days Are #5 and #6 One-Day VIX Spikes in History
Mon, Aug 24, 6:11 PM ET, by Bill Luby

Many readers have commented that one of their favorite of my regular graphics is the ...

Four Strong Dow Stocks Shattered by the Selloff (But Bouncing Back)
Mon, Aug 24, 2:11 PM ET, by Corey Rosenbloom

Until recently, four leading stocks in the Dow Jones Index were trending stably, comfortably higher ...

Apple AAPL Big Drop into Bigger Buy Support Target Update
Mon, Aug 24, 1:11 PM ET, by Corey Rosenbloom

Apple shares (AAPL) declined with the technology sector and of course broader market recently, though ...

Start the Week with a Monthly Perspective of the Stock Market Collapse
Mon, Aug 24, 11:31 AM ET, by Corey Rosenbloom

Friday, we discussed a “Weekly Chart Perspective of the Retracement” so let’s take a moment ...

Aug 21 Steep Selloff Market Update and Stock Scan
Fri, Aug 21, 3:11 PM ET, by Corey Rosenbloom

The Steep Stock Market Retracement continues with a breakdown under yet another support level (2,045) ...

Weekly Chart Perspective on the Steep Stock Market Selloff
Fri, Aug 21, 1:21 PM ET, by Corey Rosenbloom

Given the negative divergences in momentum, volume, breadth, and market internals – along with the ...

Downtrending Collapse Market Update and Daily Stock Scan
Thu, Aug 20, 4:21 PM ET, by Corey Rosenbloom

Stocks continued the bearish action, breaking away from the midpoint level of 2,100 toward the ...

Extreme Reward but High Risk for Leveraged Inverse Crude Oil DWTI and DTO
Wed, Aug 19, 12:41 PM ET, by Corey Rosenbloom

How would you like to buy a stock – or ETF – that tripled in ...

Weak Stock WalMart WMT Breaks to New Lows in Downtrend
Wed, Aug 19, 11:31 AM ET, by Corey Rosenbloom

Wal-Mart (WMT) continues to appear on our stock scans as a “Weak Stock Getting Weaker,” ...

Strong Trending Home Depot HD Surges to New Highs
Tue, Aug 18, 1:31 PM ET, by Corey Rosenbloom

We love the concept of “Strong Stocks Getting Stronger,” and Home Depot (HD) continues to ...

A Key Make or Break Level Here for Russell 2000 and IWM
Tue, Aug 18, 11:21 AM ET, by Corey Rosenbloom

The Russell 2000 Small Cap Index has shown relative weakness to the S&P 500, but ...

August 17 Range Reversal Update and Trending Stock Scan
Mon, Aug 17, 3:21 PM ET, by Corey Rosenbloom

The broader consolidation continued as price reversed strongly off support this morning. What levels are ...

Yes We Really Are Still Within a Simple Trading Range
Mon, Aug 17, 12:11 PM ET, by Corey Rosenbloom

We begin the new week at the midpoint of our broader trading range rectangle in ...

Aug 14 Big Stock Scan and Intraday Range Update
Fri, Aug 14, 4:11 PM ET, by Corey Rosenbloom

After a volatile Wednesday, stock prices settled into a welcome trading range consolidation to end ...

Buying and Trading Levels for Amazon AMZN
Fri, Aug 14, 2:31 PM ET, by Corey Rosenbloom

What levels are key for traders in Amazon.com (AMZN) now? Based on these levels, what ...

August 13 Stock Scan and End of Day Market Update
Thu, Aug 13, 4:31 PM ET, by Corey Rosenbloom

Yesterday’s rally continued into today’s session though price fell shy of the full touch of ...

Big Reversal Market Update and Super Stock Scan Aug 12
Wed, Aug 12, 3:21 PM ET, by Corey Rosenbloom

Well we should never refer to the market as boring! Today’s session saw a surprise ...

August 11 Breakdown Update and Big Stock Scan
Tue, Aug 11, 4:11 PM ET, by Corey Rosenbloom

The market continues to trade within a well-defined trading range and the last two sessions ...

The Sugar Sweet Downtrend of 2015
Tue, Aug 11, 10:11 AM ET, by Corey Rosenbloom

Sugar’s slide continues in one of the most persistent and stable trend structures. Let’s take ...

The Thrilling Exciting Nonstop Great Trading Range of 2015 Simply Continues
Mon, Aug 10, 12:11 PM ET, by Corey Rosenbloom

How are you doing within the Great Trading Range of 2015? One of the first ...

Six Dow Jones Stocks at Fresh New 52 Week Lows
Thu, Aug 6, 1:51 PM ET, by Corey Rosenbloom

Not all is well with the Dow Jones Industrial Average. While some stocks are getting ...

Updating the Trading Range Levels in the SP500
Thu, Aug 6, 1:21 PM ET, by Corey Rosenbloom

The 2015 Trading Range continues for the market as prices fell once again to challenge ...

August 5 Surge Market Update and Trending Stock Scan
Wed, Aug 5, 3:41 PM ET, by Corey Rosenbloom

Despite a strong morning rally, price fell back toward the 2,100 level, continuing our range ...

A Dynamic Drop into Support for Strong Trender Disney DIS
Wed, Aug 5, 2:11 PM ET, by Corey Rosenbloom

Not to be outdone by Apple’s (AAPL) big gap into support yesterday, strong trending stock ...

August 4 Big Mover Stock Scan and Market Update
Tue, Aug 4, 3:31 PM ET, by Corey Rosenbloom

Stocks tested their lows as an ongoing consolidation (range) environment continues. What levels are we ...

A Big Drop and Breakdown for Apple AAPL into Target
Tue, Aug 4, 11:31 AM ET, by Corey Rosenbloom

Apple (AAPL) shares entered distribution mode with a breakdown under support and the 200 day ...

What Two Breadth Charts are Saying about the Current SP500
Tue, Aug 4, 10:11 AM ET, by Corey Rosenbloom

Is a reversal developing in the stock market? Let’s listen to the message from two ...

Start of August Update and Trending Stock Scan
Mon, Aug 3, 3:21 PM ET, by Corey Rosenbloom

Though buyers attempted a bounce-rally up off 2,100’s key support level, they failed as the ...

Key SP500 Trendline Planning Levels to Start the Week
Mon, Aug 3, 11:21 AM ET, by Corey Rosenbloom

Short term traders benefit from taking a moment to view the larger picture of ongoing ...

July 30 Bounce Market Update and Trending Stock Scan
Thu, Jul 30, 2:41 PM ET, by Corey Rosenbloom

Buyers bought a downside swing this morning, resulting in a price swing back to the ...

Planning Levels for Buying Facebook FB at Support
Thu, Jul 30, 11:51 AM ET, by Corey Rosenbloom

Is this the spot to buy Facebook (FB) shares? Let’s update our daily chart levels, ...

PreFed Price Level Planning on SP500 Dow and NASDAQ
Wed, Jul 29, 3:31 PM ET, by Corey Rosenbloom

As we head into today’s Federal Reserve announcement, let’s quickly update our key levels on ...

July 27 More Selling Market Update and Big Stock Scan
Mon, Jul 27, 3:51 PM ET, by Corey Rosenbloom

Stocks continued their sell-off toward lower support targets, and that’s where we begin today’s update. ...

Traders Should Watch this Level in Netflix NFLX
Mon, Jul 27, 11:51 AM ET, by Corey Rosenbloom

After a price surge and gap higher, Netflix (NFLX) shares are retracing in an ongoing ...

Simple Support and Resistance Grid for MannKind MNKD
Fri, Jul 24, 3:21 PM ET, by Corey Rosenbloom

A couple readers have asked me to chart MannKind (MNKD) – a low priced but ...

July 24 High Activity Market Update and Stock Scan
Fri, Jul 24, 2:51 PM ET, by Corey Rosenbloom

With many stocks gapping, gold surging, and stock plunging, there’s a lot to cover in ...

July 23 Selling Market Update and Big Stock Scan
Thu, Jul 23, 3:51 PM ET, by Corey Rosenbloom

After a small morning bounce off support, stocks continued falling along the sell pathway from ...

July 22 Market Update AAPL Gap and Daily Stock Scan
Wed, Jul 22, 3:11 PM ET, by Corey Rosenbloom

So far, we’re seeing a repeat of yesterday’s morning weakness, afternoon stability, and rally into ...

July 21 Stock Scan and Sell Swing Market Update
Tue, Jul 21, 2:51 PM ET, by Corey Rosenbloom

The logical and expected sell-swing (retracement) developed against a background of resistance and divergences. However, ...

Finally a Pullback - Charting ES and YM Stock Futures
Tue, Jul 21, 11:41 AM ET, by Corey Rosenbloom

Is this the pullback we’ve been waiting for? Let’s do a quick morning update of ...

July 20 Bull Market Continues Market Update and Stock Scan
Mon, Jul 20, 3:11 PM ET, by Corey Rosenbloom

The short-squeeze and bullish price surge continues in the stock market at the same time ...

Bear Trap Trigger Puts Price on Path to All Time Highs for Apple AAPL
Mon, Jul 20, 11:41 AM ET, by Corey Rosenbloom

After springing a Bear Trap, Apple (AAPL) shares pivoted and trapped the short-sellers, placing price ...

July 17 Flat Market Update and Big Mover Stock Scan
Fri, Jul 17, 3:11 PM ET, by Corey Rosenbloom

Despite the strength of technology leaders Google and Facebook (among others), the S&P 500 is ...

  More articles:  1 2 3 4 5 6 7 next »

ABOUT US »   ADVERTISE »   CONTACT US »   TERMS OF USE & PRIVACY POLICY »

December 4th Lesson in Recognizing and Trading Intraday Trend Reversals | Self Directed Investor | Copyright © 2008 - 2015, All Rights Reserved

Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners. In no way should any content contained herein be interpreted to represent trading or investment advice. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.

SDI is associated with: ValueForum.com -- a subscription-based online social networking forum of serious individual investors. | MarketNewsVideo.com -- videos appearing on SDI are produced by Market News Video. | TickerTech.com -- stock quote content appearing on SDI is at least 20 minutes delayed and is powered by Ticker Technologies. | GoldStockStrategist.com -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on gold mining companies.