Dow Intraday charts 27/05 31/05

[ChartMan]

Another good start to a week..... A Drop at the open followed the drop in pre market futures- what else.? Swiftly dropping to Friday's support and then off. Safe long entry- not too hard... Remember the deliberation at 8610 in the last two sessions? This was the key today. A swift test of 8600, then to 8613 with a pullback to 8607 and off with a long entry off that support bounce.
First target gave T1, as did the second pullback- a double confirmation. One wouldn't expect T3, but this was just another one of those never ending longs, so although we got the ND top, there was a point in calculating a target- T3.
Just to play safe, It seems worthwhile in closing the long on the third peak. There will always be a pullback from here- big if it's a real top, minimal in a strong up day, before continuing. Close the trade, take a coffee break.... going back in if it's going to continue just ensures you are at minimum risk. You never know, the market may just kick you hard....
So back in after we are sure we are going to continue. Look for that confirmation- no rush as the bulk of the move is done. Between 16:40 and 16:50 we had a bear flag develop. Now this you had to identify and watch. Any "bear" form at a top that fails to deliver is a long entry. ( conversely any bull form at a bottom that fails to perform is a short...)
It looked like delivering at 8704 ( who went short?) but promptly rose to make a higher high at 17:01 and in we go long and off to find T3...
The peaks and troughs in RSI should have told you that there was not going to be any more big moves, either way. Nice and relaxing. Divergent bottom with flats across RSI IS a valid divergence at 8740. RSI doesn't have to be rising against the price- it usually does- It's still divergent, but not common.
The hardest part of the day was picking the final close....
An easy 160 + points or just over 200 if you spotted the early bear flag fail at 15:00 at the open and took a gamble....
Nice to see some serious points on offer although that's nothing compared to a while ago when 6-700 points were the order of the day.
Oh, I almost forgot the RS Switch at the bear flag "go long again decision"

 

[mombasa]

Hi Chartman,

After my trading fiasco last week, I took a step back, took on board your responses to my questions and spent the w/e going thru all your current daytrading charts practising entry and exit points etc. Funny, but when I first started I though I had entry points sorted and was weak on exit - now it's the other way around - it's the opening half hour that can be a killer - so easy to get it wrong - trouble is if u wait then it's very easy to miss the big moves. Still not sure how to play the opening half hour ....

Anyway, yesterday, I didn't go short 'cos there was news expected at 3.00PM GMT so waited. Went long after the price crossed 100MA on the pull back (well, tried to but Fins stopped online trading for a while - had to wait a bit). Closed at the 3rd peak ND - Yippee! It works !.

The thing is, in my prev days I would have seen those pullbacks and probably have closed after DOW was +50 or so - this time I hung in there - boy were my fingers getting twitchy.

I then waited for the next entry but really couldn't see any (certainly no shorts) - will take onboard your comments on going long again. Still didn't too badly - followed your rules and hey presto

I think now it's a matter of confidence building - I'm only doing 10p a point and will build that up to £1 - hopefully if all goes well it'll be £10.

Some questions if you don't mind please :

1 - My target is 100 points a week. At £1 a point that seems easy to achieve - £100 a week - but if I increase to £10 a point = £1000 a week - well, that sounds too easy and somewhat daunting. Is it really that easy to achieve? Kinda scares me. What's the catch? Your whole method seems to make dow trading very simple but surely it can't be that easy What was your strategy when you started and what kind of targets? Any timescales?

2 - The opening entry points - do you have any strategy's here? I presume if the dow opens with little gap then one can continue the TA. It's the opening gaps that freeze me everytime - do I go for it? - what's my stop loss? Or do I wait and miss out but at least be safe?

Once again, thanks for the fast track - I can imagine how much effort you have put in developing your system and on your continuing efforts to educate us.

PS Still can't join the chat room, but I was refreshing the HTML page to keep in touch. Maybe one day I'll be able to do this from home.

I'm still stunned at how simple u make it - just find it difficult to believe it can be done consistently despite the evidence

Thanks again!

 

[ChartMan]

Staying out of the maket is no big deal. it's part of the game. Patience will be your saviour. There's no rush to jump on board anything, anywhen. Bide your time, look for the confirmed "safe" entries and play your way to the end. Adopting this approach, you don't need to capture 90% of a move. Taking just 50% , most of the time will beat all your targets.
If the open gap is small, the TA continuity is a great help. I never jump in on a gamble at the open, there's just no need. It's surprising just how many points you can rack up being a Tea Time trader- just taking a position at 6:30 to 7pm UK time.
Forget about £ per point totally. Just concentrate on taking winning trades and TA as it comes along will get you out in the right place. Keep a log, work out your daily averages and build from there. 100 points a week is an easy target and by definition there is absolutely NO need to jump on a trade!!! On the other hand, if patience fails you, trade 1/10th stake and have a flutter to overcome the boredom. The downside to this is that if you get good at jumping on board, you may be tempted to up the stakes- don't do it. A gamble is a gamble. There are plenty of people that have strategies for the open, but by and large it's better to miss the first 30 mins.
My strategy when I started out was to find a simple method to trade the dow that had simple easy to follow rules and produced good results. It took a long time, but It's there for all to read.
Suits some, does not suit others. As your skills progress, you can make aditional decisions to increase your points gain.
Keep going with 10p until there's absolutely no fear and no greed. Then step up a gear to 50p....and just remind yourself " it's only points" :cheesy:

 

[ChartMan]

Talking of the open gambit..... A tricky one today. IF you waited for the first half hour, chances are you were ready to jump on board a long.... Take a look at CCI and RSI- both divergent and contrarian- I've said don't trust open divergences. The answer is, if you're not sure, stay out... You're not to know that this time the divergence will (or won't) work... But at 8810, you can safely say it's working and go short.
If you missed that, look for the next entry.... the short Pos. divergence off the bottom should have started the alarm bells ringing... A short term divergence means shrot term up.... and here we had a "W" bottom. Now we get a long entry as the price breaks through 8790 . And what did you lose by waiting? 20 points or so... If you miss the bus, wait for the next one. You''ll never catch the one that left already and if you do, you'll quickly find out it's going the wrong way.
Look for an out. Nice and convenient bump ND top. Take it and wait.
Next entry at 16:44 as the price bounces off the ND res line to make support.(8842). Unfortunately this turns into an H&S top. The trick here was to recognise the left shoulder, the heaad and anticipate the right shoulder. This came at 8850 and a smart close as the trade becomes a loser for a few points. There's little point in jumping ship earlier as this could have carried on up. You really need to wait for TA confirmation, even if it means turning a few points loss. Gain confidence by reading, anticipating and acting on TA fact, not hope or wishes.
The H7S carried on to deliver to target and below that is the short entry.There were two pullbacks to the 100MA as this short developed, the second coming on a new uptrend support line that flipped here to resistance. That line was formed from yesterday's dip at 8728. Ride the short an you see the H&S that fails..... cover? not yet... we're still under the 100MA, but soon to break it by a few points. At this point, it's twitchy, but a double top just above the 100MA confirms "no breakout" and then into the bear flag... Now the short gets interesting. The bear flag gives a target marked on the chart and the price fails to get there.
Notice the long term pos divergence has set well in.... the final short term pd at 19:57 should have confirmed that the bear flag was not going to deliver. Time to cover here..... I'll just remind you, a bear formation that fails in a down trend is a cover situation. It's not an open invitation to go long either. You have to wait for that. It came soon enough as the price went through the 100MA and bounced off at 8793. Not much in this one though with 45 mins to the close. Spotting the H&S should have got you out for a few points from the long. Getting 100+ points today was a hard slog....
Just trading the basic 100MA rules would have netted 50 +, points today. If you're not up to speed on TA, it's a simple way to trade safe and make a few points.

 

[ChartMan]

Post script. I'm not one for predicting, so I won't.
Look at the 10 min charts. There's a possible cup and handle forming from today's action. The entry will be at 8820 ish...

 

[zebra]

Chartman,

As ever, thanks for the your invaluable lessons, but.....

I notice occasionally that the recorded high or lows for the day do not correspond to the charts. Yesterday 28th both Yahoo and Bigcharts (indu) record the low as 8721, but I notice your charts, AIQ et-al don't indicate this, the low looks to be about 8775. Am I missing something here or is one of these incorrect? Why is there a difference?

Can you explain please.

Zebra.

 

[V. III]

Chartman,

Is the use of an 87 EMA a result of a backtest ?

V. III

 

[mombasa]

Hi Chartman,

"A short term divergence means shrot term up.... and here we had a "W" bottom. Now we get a long entry as the price breaks through 8790 . And what did you lose by waiting? 20 points or so... If you miss the bus, wait for the next one. You''ll never catch the one that left already and if you do, you'll quickly find out it's going the wrong way"

Are you saying here that one should have gone long on the PD or wait until the pullback to 100MA? Safe option would have been to wait but then u'd have missed out on the 20 points. Is it always safe to go long on a shorttem PD or short on shorterm ND?

On a similar tack, if u see a bear/bull flag developing and :

a) You are not in a position, would u take one in the direction of the anticipitated breakout or wait for the breakout. Thing is if u wait for the breakout, by the time u place the trade, the move is over

b) If u are in a position but against the TA bull/bear would you close?

c) Does the distance to the MA have any bearing on the above tactics?

Thanks once again - it's amazing how eagerly I await your replies

 

[fazalv]

''Thanks once again - it's amazing how eagerly I await your replies''

Here here!!

 

[ChartMan]

looks like my charts are screwed again, the EMA should be 100,not that it matters too much, I've played with 80 to 120 and no real advantage in either direction, save in trendy days, the 80 would be better and in slack days, the 120 would be better...
The difference in highs and lows is the difference between " theoretical/cash values to the computed values, or some other equally meaningless statistic..... There was a correct explanation posted by Skim I think. The actual values don't matter, like everything, what you need to look for is the TA formations and the relationship between the 100MA and the price..... be the price real or imaginary. It's a real pain when you come to cross correlate EOD DJI or INDU with MyTrack DJI intraday price.... you get the longer term support and resistance values well screwed up , so that's the area you need to be most concerned with.

Taking a position on a short term divergence is for scalpers. IF it turns into a longer term reversal, then it's luck and NOT skill. A gamble entry.......
Only you can decide on your comfort zone and whether or not you take a gamble entry. Everything you do is a gamble, BUT hopefully, when you have a plan and follow TA patterns, the odds are slightly in your favour. As far as the flags go, you will already know the "pole length"..... you can project the anticipated start of the rise from the slope of the flag and the fact that it is likely to have 3 cycles..... Ask yourself " Is the risk worth the reward."?
If the pole length is 30 + then I guess yes, else no.Do you like to gamble, or do you like to play safe? Can you afford to take the gamble and lose? Shall I place 1/3 stake and gamble and add at the break? Only you can decide all these factors.

Not sure about a), Mombassa......
as for b) the further away the TA is from the 100MA the less chance there is of a violent reversal... news excepted.
I think the 100MA acts a bit like a magnet.... get too far away and it trys to pull the price back.... either way. You can use this to your advantage.... the steeper the price slope, the more you can risk adding.... then as soon as you see the price slope changing towards levelling off, start unloading....

 

[oatman]

Chartman,

I'm moving from Ftse to Dow, so I'm interested in your posts.
Have you looked at 200 MA?
Also, is there a favourite or recurring pattern that you like in the Dow? I liked your "magic numbers" post..... it ain't all cut 'n' dried!

Cheers

 

[ChartMan]

One way or another, I've probably looked at most things and settings. 200 MA is ok for longer term trades, and maybe if you're going to hold overnight. Need wider stops maybe 50 -70 to keep in the bigger moves. You need to look for yourself and see if it fits in with your trading style ( laid back?) and you understand how to resolve action around the cross points ( whipsawing).

 

[ChartMan]

I checked my chart settings- it's 100MA. The "8" to the right of the charts is the value of the 100MA - 8798. That's cleared up now.
Another nice day for trading. Clear cut entries and exits for those that are following the "rules" . C&H just about came off, shame it didn't go higher, but there we are, who cares?
Hard part today was staying out in the horizontal channel. Nice example today of hopw the DOW likes channel, up, down or sideways! I've marked the trades on the chart- see if you can work out why etc. What do you make the target for the big bear flag mid session? Why didn't we make it? IF you went short on the 4th. pk of the ND top, would you have stayed in all day? What was the significance of yesterday's channel resistance line?
I've drawn in two lower channel support lines....which one will be significant tomorrow?
I make it another 200 odd points on the table today....

 

[Dino]

Great chart again Chartman. One question, if I may.

I saw the 3 then the 4 peak divergent top and thought about a short entry after the break of the lower trend-line. What stopped me was that I did not understand what this pattern was - it was not a flag or a pennant, maybe just two upward sloping parallel lines. Is there a recognised TA formation here ?

Anyway, although your teachings have said that a 4 pk divergent top is not that common I was not sure if this was a short entry point or just a closure point if you were long. So when in doubt I stayed out - probably would have got bored in the long channel and closed early anyway - there is always another day & it was sunny yesterday, far too nice to be starring at a screen all day.

Your input always appreciated.

Dino.

 

[china white]

great chart CM, many thx as always!

 

[ChartMan]

Dino, you have to know that things change with time...... The 3 pk divergent tops and bottoms have always stood the test of time. Lately , and certainly this week, these formations have evolved into 4 peaks..... Why, I have no idea, and I don't care. The thing is to recognise that something that was a bankable "dead cert" yestreday,( as far as that statement is true) may not hold entirely true today. We're nit picking here though. The points lost or at risk by holding for a fourth peak is insignificant,therfore close the trade after three.
As for a specific TA formation, one could look on these tops as all being Bear Flags, and as such, because they are at a top, they are a reversal indicator. Logic would say go short on the uptrend support break. If this is close to the 100MA, then it's a reasonable trade. If the break is 50 away from the 100MA, I wouldn't take a short as at this point as the market is very strong. This last week has seen these tops fail a bit, and then slowly continue their move up....
As for taking the short and watching it go sideways, that's with the benefit of hindsight. At that point in time there is no knowing what the market will do, as is always the case. My analysis makes it sound simple and easy. In reality I know full well it is not easy at all.

 

[Dino]

Thanks for that Chartman - much appreciated.

Dino.

 

[mombasa]

Hi CM,

Thanks for all your help and advise in the chatroom today. After my initial panic I managed to settle down and make a few points - shame the dow traded sideways for the rest of the day - I went short after it broke the 100MA and pulled back - closed for a few points at the channel bounce.

You are absolutely right - your analysis does make it sound very easy - in realtime its not - except for you ofcourse - u were spot on and it's nice to see a master in action.

One valuable lesson I did learn today was patience - the entries will come sooner or later - a weekly target of 100 points should be achievable.

Dunno when I'll next be able to join u all in the chatroom - but it was a scintillating experience - my thanks to all (china, rosso, otho, ford, frugi and yourself - apologies to any I've missed).

 

[ChartMan]

Glad you could join us Mombasa.It's a shame the DOW didn't play ball. Your entries were well judged and based on good TA. That's how it goes sometimes. As you figured out, It's just as important to take your time planning an exit as it is an entry and it isn't always a simple case of "that's my stop".
Today was all over by 16:00, but we carried on deliberating in the chat room about TA forms.There was a break from the down channel/bull flag that just didn't deliver. We discussed the exit from this trade and arrived at a poor exit. Just 3 more points down and it turned round and the trade could have been recovered at even... We decided that support was around 8838/8840. At 17:05 there was an apex formed from horizontal support and uptrend support meeting at 8840. This seemed the perfect place to close on failure. . The long entry was taken at 8845 at 16:47. Fins gave a price of 8860 and it was taken...... At this point , the price was 20 above the 100MA, so a nice "safe entry"....
Now the error in the exit was this. Trading the 100MA rules says hold a position all the time the price is within the 100MA +/- 20 band. So in reality, we shouldn't have considered closing the trade until the price went below 100MA -20. Unfortunately that could have been a 40 - 50 point loss. Had the trade been taken at an unbiased level, then it would have been a more acceptable risk. We also recognised that the down moves were very weak at 2:1 RSI to price. That could have swayed us to consider a lower stop......
But there we go. As Mombasa said, " there's so much to remember". Very true.
Incidentally, 8840 was a channel resistance line from yesterday.

 

[mombasa]

Hi CM,

In the chatroom u mentioned 8810 for going long and 7860 for short- still can't figure out why. Help please.

thx