Today, Monday 8/15, was a good example of how an up market can be very difficult for many bullish traders, and still have great moves in it. The difficultly comes from the strong open that starts to breakout but the fails. The big move comes from the low of the day - not the open! This is why reversals are such a powerful pattern. Keith nailed it by probing the breakout and taking quick losses then getting in on the OR reversals for big moves that lasted the rest of the day.
The best setup enable you to have your risk of 1/3 of an ATR below a key reference points such as the Pivot or pivot low, or S1, or the prior day’s low.
We saw this in action today with great OR Low reversal trades in quite a few names – MA, WYNN, PANL, DECK, QQQ, and more.
Breakouts will work too, but you want to be selective in markets like this.
I’ll post a video in the training section under last Thursday called “BIDU Falls Apart” that anyone who likes the idea of trading reversals should watch more than once. It shows how important it is to know a little weakens in relative strength and a few signs of weakness relative to the key reference points can turn a long into a short.
It is very possible we’ll see a lot of these patterns if the market rolls over. Watch out for it, particularly in the market watch indexes (SPY, DIA, QQQ, & IWM). The pattern to watch out for will be the markets all trading below S1 and the prior day’s low. Until then, OR reversals are a good approach.
On last tid bit for tomorrow. Markets closed above R2 today. This will make R2 a stronger level of resistance tomorrow. This means it’s a great place to take profits, or look out for a rollover there if the markets rally in the morning.
Long Focus
CBS
NFLX
HANS
SLG
JAZZ
YOKU
ED
VHC
MA
Short Focus
GOOG
GMCR
SKF (inverse buy to short financials)
