Swing Trading Strategies & Stock Picks Since 2003

The market gave us another “Trend Day Down” structure Monday - let’s take a look inside the DIA 5-min chart structure to see choice trading opportunities within the swift down-current that was so pervasive all day.

DIA 5-min Chart:

As volatility begins to pick back up in the marketplace and a clear direction emerges - not saying we’re there yet but when it does - then expect more of these trend days that open at one extreme and close on the other.  Learn how to trade a trend day.

Generally, trend days start with a large, unfilled morning gap and price continues in that direction all the way to the close.  Today, we didn’t get a large gap (though it was $0.40 in the DIA) and price scarcely attempted to fill that gap.

Our first “Ideal Trade” of the day was an “Impulse Sell” that formed on the rectracement against the new price and momentum low (as price pulled back to the falling 20 EMA and formed a doji).  Price quickly swung down an dmade a new low into noon (on a momentum divergence) as price chopped around in a rectangle pattern (specifically a “Measured Move” price equality pattern… or A to B = C to D).

Though we might should have suspected a trend day, during this consolidation, price could have broken either way and may have turned into a “Rounded Reversal.”  Ultimately price broke sharply to new lows after testing the falling 50 EMA (setting up another “ideal trade” and threatening any stop-losses properly situated above it).  It was at this point (2:00pm) that a Trend Day structure was confirmed beyond a reasonable doubt.

As such, you were to short any rallies to the 20 period EMA.   Notice that doing so ‘worked,’ though price formed a “Three Push” reversal pattern to close out the day’s trading, though it found resistance at the falling 50 EMA.

Remember, during a trend day, it’s best to ‘throw away all indicators’ and focus exclusively on the moving average structure, setting up trades on retracements.  Oscillators tend to give false signals as price continues to get more extended in a given direction.