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A Second Divergent Drop for Google GOOGL

Wed, Mar 22, 3:41 PM ET, by Corey Rosenbloom

Google (GOOGL) rallied a second time into a key reversal or “fade” set-up and delivered the goods.

Let’s take a look at this “Divergence plus Upper Bollinger” pattern and learn what we can from this example.

Most trades are either taken in the direction of a prevailing trend or against it.

While I prefer pro-trend strategies like retracements or breakouts, aggressive “fade” or even reversal strategies have their place in a developing trader’s toolbox.

The “Divergence Plus Bollinger” fade set-up occurs in a mature uptrend when price rallies up into – or preferably peaks just above – the upper Daily Bollinger Band.

We can look beneath price at volume or momentum – often seen best on intraday charts – for any sign of negative divergence as price scrapes against the upper Bollinger Band.

This set-up is enhanced – with higher probability of success – when reversal candles like dojis or shooting stars (or even spinning tops) appear at the upper Bollinger Band.

VERY aggressive traders can short-sell a break of a rising trendline on a lower timeframe as we see here:

It’s difficult to short-sell INTO a rising market as price continued (extended) its rally until the eventual drop.

The first “drop” was May 20th when price collapsed in a gap-down through a rising trendline and the rising 20 EMA (hourly chart).

That would have been an aggressive short-sell but it required a wide stop (beyond the prior high) as buyers (unwilling to give up yet) thrust the price back toward the $874 prior high (but not above it).

That’s where we see the COLLAPSE through the 50 EMA down toward $850 where the fade ended.

The TARGET for this type of aggressive “Fade Trade” is often a rising moving average on the Daily Chart.

In this example, price crushed through the rising 20 day EMA target of $856.

You can take off the whole position or just half as price reaches a target (and hold as long as possible, exiting when price rallies through a falling trendline – at roughly $852 in this example).

Fade Trades can be fun but are often more stressful than classic pro-trend retracements, but they’re available to you as you progress your trading knowledge and experience.

Afraid to Trade Premium Content and Membership

Follow along with members of the Afraid to Trade Premium Membership for real-time updates and additional trade planning.

Corey Rosenbloom, CMT

Afraid to Trade.com

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

Corey's book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).”

blog.afraidtotrade.com


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