I got a request to review this daytrade:
The age of the machine:
These times we are truly in the age of the machine when it comes to trading.
There are programs that can analyze supply and demand quickly inside any trend to identify whether a large move is happening with solid buying volume behind it or it's just a bounce to release some oversold pressure, to form another lower high pivot on the larger time frame to keep moving lower.
Basically these computer programs buy strength or short weakness and so should you.
Lets look at the clues.
The question was, can a stock with its daily chart in a downtrend, that already moved 20% after the open keep moving higher? If yes, what clues to look for,
The daily chart shows DGLY Quadrupled in price in a matter of days a few weeks back, with the biggest candle trapping every last willing buyer and exhausting them all. Only sellers were left after that, to this day, many longs are still trapped waiting for a potent bounce to get out higher or even if possible, now inside a clear downtrend on its daily chart (lower lows beget more lower lows until that trend changes), it has many topping tail candles as seen on the daily chart.
If all of them topping tails were seen on their 60 minute chart they would look like today, price moving higher early in the day, sellers showing up after lunch closing price near the lows. I count seven daily topping tails where the bots kept faking and trapping the masses expecting the big bounce.
The best pattern to enter for a decent swing long is to wait for the first potent bounce with massive volume to signal big buyers are behind it, wait and look to enter if the pullback is >40%, controlled for the HL W Bottom bounce or the same way it climaxed but in reverse.
On this particular day it ran the first 30 minutes a total gain of <25% from the close, whomever held overnight and sold near 17.50$ Had a great day.
25% is a large move but inside the auction it could grow (happens in rare occasions) to 50% or even 100% gain provided the move gets digested first with big green volume during the rest of the day, with nice controlled pullbacks that hold < 70% the big surge (like the chart below), once all profit takers get out if price is near the top on a clear tight base, the stock could break out during the last hour or much better if it B/O Happens next day after the open.
Seen through the 5 minute chart, the big buying volume disappeared after the first 30 minutes leaving only sellers. Keep reading why this is important.
Some charting programs finish the first hour's candle after 10 AM Such as the one marked 1 with red and some others after 10:30 AM as 2 with red.
Nothing happens by accident inside Wall street. The big drop on the 11th Candle on the 5 minute chart or 9 minutes before the first candle was going to close on the 60 minute chart on 2 red, basically formed a giant wick of trapped buyers or new resistance, they were forced to either sell lower or ride it much lower.
Those are early warning signals that it was just a bounce and trap to release some oversold pressure and to form a LH Set up bar and eventually a LH Pivot on the daily chart as explained here:
http://chalannn.blogspot.com/2012/08/anatomy-of-trend-pivot-disclaimer.html
One way for a big morning surge to keep moving higher without a long digestion period is as seen on the chart above: 1- Massive buying volume pushing price higher all day long. 2- All pullbacks being small and immediately bought.
But use common sense. If you are entering inside the giant surge or chasing price without a good rest (long digestion/ base) look for warning signs of a possible reversal such as the biggest green or red volume candle on the 5 and 15 minute charts after an extended up move. The establishment of a downtrend on the 5 minute chart that will pull the larger time frames lower or a very violent drop that bounces tepidly signaling that traders on the sidelines are not seen it as a " great buying opportunity".
If you have profits pay your self something by selling some on the way up, if the trade puts you upside down right after your entry, remember that most longs bought before you and can make it a bigger loss if they decide to sell en mass, so don't let hope of getting out break even cloud your judgment of taking a small lose that could turn into devastating loses if price has no visible support underneath of where you entered, as explained in detail in the lessons on shorting climax.
Try buying stocks with clear up trends on their daily charts where shorting programs don't get too aggressive: http://chalannn.blogspot.com/2014/02/finding-trades-at-specific-areas-inside.html
If you are day trading don't dismiss the difference of closing hourly candles that you don't see, (specially during at the end of the first hour) it can get you in trouble. E-signal allows you to close your 60 minute candle at both times (two different windows) so you can monitor what all day traders are seeing
If this lesson doesn't make any sense to you, read the first ten lessons on this blog, because they explain in detail most of the method of use to analyze any stock in the markets.
I hope you learned something valuable.
Feel free to leave a comment.
All charts are source www.FreeStockCharts.com
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