DIA: A Trend Day Down Full Of Bear Flags

Today’s intraday price action in the DIA (DIA) (Dow Jones ETF) was particularly horrible for the bulls, but it provided us a few excellent examples of clear bear flag patterns as well as an opportunity to view a near perfect trend day down.  Let’s look.

DIA 5-min chart:

The day began with an opening gap… to the upside which gapped into confluence resistance via the 20 and 50 period EMAs - this gap was quickly filled.  There was no clue at this time that we would have a trend day down - usually, most trend days begin with a large-scale opening gap that is NOT filled.

Price then quickly made a new low and then coasted back up to test confluence resistance especially at the 50 period EMA where price became trapped between the two shorter-term moving averages… and then failed to reach higher, signaling a non-confirmation and offering up a potential short-sell entry.

Price then formed a roughly (though less than) 45 degree angle correction back up in the confluence resistance via yesterday’s close and the 20 period EMA… wherein price was unable to overcome this as well, setting up a possible bear flag trade for a measured move of the prior impulse - which was achieved rather quickly as price made new lows after noon.

We had yet another mini-flag into confluence resistance, this time coming in from the 20 and 200 period moving averages as price scuttled to yet another new low on the day.

I continuously find ‘confluence resistance trades,’ particularly those involving a key moving average, as an “Edge Trade” simply because we expect price to find resistance during a trend-move at key moving averages - however, the ‘edge’ component arises from the fact that the stop-loss, which is placed just beyond (in this case above) the confluence zone, is much smaller than the target, which is adjusted to your preference, but in the case of a bear flag, it becomes a measured move - almost always of which is a larger target than your stop-loss.

Moving on, price then formed a large-scale impulse move to the downside at 2:00pm, forming a new price low confirmed by a new momentum low - this set up an “Impulse Sell” trade which could have also been classified as a “Bear Flag” trade as price retraced back to the falling 20 period EMA and found major resistance there before plunging yet again to new lows on the day on a completed “Measured Move” of the prior impulse down.

Price ended the day on yet another 45 degree angle move upwards into resistance, though the clock ran out on entering any intraday trades for the session.

These trade ideas are just some of the possibilities you could have found and applied during the trading day to achieve low-risk, high-probability set-ups.  Continue to study each day’s intraday action for the “Idealized Trades” and developing price structure so that you will internalize these patterns and be able to recognize/act upon them in real time during the action of the trading day.

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