Idealized Trades For Thursday In The DIA

Let’s step inside today’s (Thursday) trading action in the DIA (DIA) to see what points represented ‘idealized trades’ and gather as much information we can from the price structure that developed on this reversal day.

DIA 5-min:

The day started with an overnight gap to the downsie of roughly $1.00 (or 100 Dow (^DJI) Points) which is just in the gray area of “Do I fade it or not?”.  Price quickly began moving up which meant that only the nimble (aggressive) traders were able to get their ‘gap-fill’ biases moving through trades that targeted yesterday’s close (purple line).

Indeed the gap did fill and formed a new momentum high on the day, which hinted that a new price high might still be yet to come.  Price formed sort of an “ABC” correction around 11:00am.

Notice the three dojis at confluence support via the 20 and 50 EMA along with yesterday’s close - that would have been an ideal opportunity to get long, but notice what happened quickly afterwards.  Price began a move higher but was zapped down by two bars, taking us below the confluence moving averages where we generally place stops… only to have the tight stops taken out before price actually did move to new highs on the day as anticipated (or expected).

The price push to new highs at noon formed on a negative momentum divergence, combined with a doji at the top of the Bollinger Bands.  It never ceases to surprise me how many intraday highs or lows are formed in momentum divergences - today was no exception.  Take note of that.

Price then trailed down to make another attempt upwards, only to fail just short of the intraday high.  Your bearish instincts should have kicked in as price broke the $87.60 support zone, which was significant because of the EMA confluence zone.

What I label the “Best short” or best trade of the day set-up just as price broke these lows and formed three bearish doji-style candles UNDER confluence EMA resistance right where the 20 crossed under the 50 EMA.  You should have placed a stop just above the 200 moving average and tried to hold for a relatively large, trend-reversal style target which was achieved rather quickly.

The “second best” entry came after this zone when price rallied back into the falling 20 EMA, forming sort of a “bearish engulfing” candle.  Price never looked back from this level, and formed almost an hour of solid down-bars (on the 5-minute chart) - merciless.

A mini-divergence preceded the late rally into the close (marking again an intraday price low on a momentum divergence).

Take time to study the price action from your own perspective and note your perception of idealized trades, so that you can recognize and react quicker in real time.

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