Day trading the DOW 28/04/03


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Words fail me. Having talked myself into believing that the dow would drop,having clearly broken through a long term channel,how do I get out of this one?
Well, one has to take what one sees and apply the appropriate analysis. I was right, the market proved me wrong. That's the correct appraisal. And so it should be with all your trades. You trade what you see. When the market decides to go in a different direction, you weren't WRONG. BUT you MUST close that trade and move on.
Today's DOW was a great start, and quickly turned into a paint watcher. Most of the afternoon in the chat room was spent discussing whether this or that was an RS switch or an SR switch. We finally got that cleared up. The bottom line is, you'll generally only get one of each during a session. So where was it?
The first was an SR switch, soon after the open. It became apparent at 15:33 where RSI pulled back to 80 from 60. The second, an RS Switch was at around 17:00 on CCI. For those with a Bull fettish there was a hint in RSI at 18:49......
A classic day for guaging moves from the RSI /Price ratios....
You'll also notice that the "step ups" were all about 35 points, making target calculations very easy. The hard part was in deciding when/if to take profits.
We discussed in the chatroom about pullback/support, some suggesting 8400. My suggestion was 8438 based on RSI/Price ratios and we pulled back to 8436!
It was also useful to remember key support/resistance values from last week of 8440/8460 and they came into play today, being a key decision range.
The other discussion point was the ND that was quickly evident from the off. Are you greedy or do you bank a profit when TA tells you it's time to bank?. Well, today, either way would have been a good choice. The correct choice was to bank at 8460 around 16:00 and sit out the paint drying excercise. Another day, the price would have dropped right off into a short entry, but not today.
Just look at the RSI /Price ratio on the rise- 50 to 160, over 3:1 Look carefully at the ratio on the pullbacks- just the opposite- 1:3
It should have been very obvious very quicky that this move had long legs and did not want down.
After all that, the next entry was another long, taken from the 8460 breakout and the RS Switch on CCI and another 30 odd points. This move was doomed from the start, moving straight into ND from the first peak. Maybe just a break even on this trade....
Just one more thing. There was a big bull flag that started just after 16:00. This was a trade, but it failed. There was nothing wrong in trading the bull flag breakout. BUT did you get the target right? It was 20 points from the bottom of the flag. That made 8464 and the target was just reached. Then it failed to continue. Watcing ES futs at that time, it lagged well behind, making me suspicious....nonetheless a valid entry in my opinion. Taken for a small loss.
And that takes me back to my opening waffle. Right decision, market didn't agree.Close trade. Move on to the next trade.
Other comments recently read.... the war is over, the maket has fallen as much as it wants, so back to normality. Still, trade what you see, and not what you, or someone else thinks......


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Here's the take from ES Futures for the premarket period as well. This is useful. There was a bull triangle that developed in pre-market. This had a target of 908 which equates to 8400 on DOW. This in itself had a pullback that gave a target of 914. Used in conjunction with the DOW you have a double edged sword.
By the time the ES triangle broke, the DOW was only just getting going, with no real idea of a final target. ES had a clear cut target. Another 6 points. At this time dow was at 8340. Add to this 10x the ES projected move of 6 points and we get 8400! Add to this the ES pullback target and we get 8460! When it adds up both ways, it's in the bank......


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Hi Chartman,
Hope you don't mind me posting this; I'm mad at myself and it's just to sort of get it off my chest if you know what I mean.
I had one of those emotional days with the price action.

Didn't bother looking at the RSI, just stared on, frozen to the spot as my greed said :
"Go long, it's another pullback."

At each pullback ledge my fear then followed up with:
"Stay out, there can't be anything left after that move."

Not once did I bother to draw a support line or attempt any TA at all. ARRGH!

Finally pulled myself together and drew in the 16:00 bull flag as it developed. Still dare not play it though, I mean there just couldn't be anything left, could there?

I made it to paint drying time, head spinning and not a point won nor lost!
In the evening at ~19:33 I started drawing in that nice up channel above 8460 S/R and waited for a breakout.

My last ND line on the RSI was steeper than yours; I joined the first two peaks, one at 19:17 'ish and the next one in at 19:33 'ish.
Unfortunatly I was caught out as, due to my steeper ND line the last two little peaks on RSI looked like a breakout on the up side.

I took rapid corrective action as the price ploughed through the lower channel boundary.

Looking at a print-out of the chart now in the calm of the evening, I see that initial push of 140 points or so and wonder why on earth I allowed emotions to deny me at least some of that action.

Hey, I know, I'll try TA tomorrow! I'll all but forget about the points and just draw some nice lines instead and see what they tell me.

Good fun though, thanks for your posts; they're a great aid for judging one's own analysis.

All the best,
It's called being caught in the headlights syndrome. If you're not sure, cut the stake and take a flyer. That'll settle you down. Then start planning when and how much to add at each pullback.
For your information, That's how I feel on every short.....
Another superb post CM. Anyone learning TA, and that is *ALL* of us 'cos none of us knows it all, should read carefully. I particularly like the tie up with the ES pre-market. Like so many things, it's obvious when set out like that, but how many of us picked it up?
Some days you can see the most wonderful set-ups on the pre-market, while other days it gives no clues whatsoever.

I always have a look at the pre-market just to get some idea of any overnight support and resistance areas, and then watch to see what happens at those areas during normal hours.

The nicest pattern to trade on the pre-market is a double bottom - often works a treat!
The S&P consists of 500 of the largest US companies; the Dow consists of 30. As you'll have noticed, all the indices move together (roughly speaking); there's usually one which leads and the others follow. So if during pre-market the top 500 companies are up, the Dow 30 are likely to want to play catch-up.

The rule of thumb is that the futures lead the indices, and the indices lead the stocks.
Skimbleshanks said:
The S&P consists of 500 of the largest US companies; the Dow consists of 30. As you'll have noticed, all the indices move together (roughly speaking); there's usually one which leads and the others follow. So if during pre-market the top 500 companies are up, the Dow 30 are likely to want to play catch-up.

The rule of thumb is that the futures lead the indices, and the indices lead the stocks.
Maybe so.

But i'm still having visions of little old ladies tearing up and down the hill with their shopping baskets since our discussion last week.!

I think this is the first empirical evidence that madness is transmissable via telephone line.
"futures lead the indices, and the indices lead the stocks"

Sorry for the newby question, but as a UK stocks trader, how can I monitor US futures before the US indices open? Are there some ticker symbols to look out for?
only just noticed, do you trade off the DJ cash? ive just got the dj`m going in sierra and obviously noticed some slight differences.

Which leads me on to SB bias... if you use the cash to trade the futures with cmc then why not trade the relevant cmc price with the data you are following? surely this wil be similar to that of the underlying.

As i dont sb or trade the dj i am a bit limited to my understanding of this bias. The only market i do sb is the ibex futures which cmc does follow to the point almost
Hi Everyone'

I was so convinced the Dow would heading down yesterday, that I was seeing double tops and heads and shoulders in every pullback. Went totally against the trend.

Chartman, when you have the time, would you mind explaining RSI/Price ratio and S/R and R/S switches. Also the abbreviation ND.
If you already have done so in previous posts could you point me in the appropriate direction.

Thanks to all

Newtron, I don't subscribe to the DJ futs...... I did once but found it a real hinderence.
Dave- ND PD is negative and positive divergence. RSI/Price ratio - both have been covered extensively in recent posts.
Don't forget that you can trade the Dow using an exchange traded fund - in the this case DIA, known as the "Diamonds". This approximates to the Dow, and has a price which is approx 1% of the Dow index, so about $85 at the moment. So if you trade this through IB, you can trade 100 at a time (even fewer if you want) - equivalent to $1 per point on the Dow, and the cost is $0.01 per share per side - and therefore a trade of 100 shares cost you $2 per round turn. Needs less deep pockets than Dow futures, and therefore less stressful when you are learning to trade the Dow. The spread is usually $0.01.
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Just a quick report tonight..... Mostly marked up to show targets etc. Good early RW switch off the lows at 17:00- not common to get such an advance warning of the impending breakout. Classic EW 5 leg down soon after the open. Note the last leg failed to make target. Note you had two shots at targets here- the H&S that "delivered" and the pullbacks.
The bear flag off the first bottom failed...too many highs and lows- mostly you will get 3 and then a decision break.
Channel width has now moved up fron 8440/8460 to 8440/8500 with RS break and retest at the close.


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Did you find the answer to your RSI/Price question?
Have a look at Chartman's last post of 25/04/03; it's all there. :))

Chartman, Bansir
Thanks for the replies, I have been following these posts avidly
since about Cristmas time, digesting every gem. I had had a quick look when I first joined the forum, but I was then trying to absorb too much at once and did not stay focussed on any one topic, i.e.
jumping from Dow to FTSE to options to Point and Figure to position trading to Stox to etc, brain was in a spin. I understand a bit more now and concentrate only on US indices or stocks.
Looking back through Chartman's postings it looks like the first was " Dow- How to Find a bottom and 100 points" on 12/10/2001.
I think I will have to download and print them all, there is a load of valuable information in there.

This forum is an amazing resource for learning and advice. You could never find better anywhere else.

regards to all
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Sorry guys, it has to be another short one tonight. I'll post a smaller chart so that the bigger picture can be seen..... Today was very choppy and those on their toes may have picked up 200+ points.
We've developed a nice bull triangle above the 100MA. The bad news it's failed. Strange thing is, just as I was commenting in the chat room that 8500 looked safe for now there was a BIG drop. No-one could find any news.... some suggested end of month cashing in by institutions.
2 choices. Either it has failed and we go down, OR it was a spurious event, and as we know, they recover to par very quickly. Time was against this happening with 8 minutes to go. Overnight ES futures will give a clue.
Here's a bit of fun... just like one of those puzzle books :)
How many triangles can you find on the DOW today?


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