Stock Trading: Don’t Look For Reversals With Strong Internals

One of the indicators that I try to follow on my daily trading are the market internals - advances and declines and up volume less down volume. Thursday, I did a good job of not trading for most of the day as holiday week trading tends to be erratic and emotional as well as thin. Into the close, I saw prices started to break higher, out of its trading range for the day. I decided to play an end-of-the-day reversal after 3:25pm.

I got stopped out of the trade for a small loss, but thinking about the trade in retrospect, it may not have been a good thought. I looked at the internals (chart above) and there was really nothing to indicate a reversal. The price action was a freight train higher all day, and there was no reason to try to step in front of it. I need to look at the internals as part of the daily thought process.

Also noticing that in the futures markets, unlike equity markets, big moves tend to occur between 3:45-3:50pm. The futures stay open until 4:15, whereas equity markets close at 4pm. It’s far better to get onto the move and follow direction than to try to predict reversal at that point.

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