Wednesday, November 19, 2008

How I trade reversals


Todays market had another great example of the signals I look for that a reversal is probable.
The markets were weak on the day so being on the short side or playing the inverse ETFs was the smart play. Both the QQQQ and S&P 5 minute chart showed a slowing on the down trend with dojis, so I sold and went short. 15 minutes later both indexes showed another doji along with dropping volume. That said to me the pop is probably finished and to trade it the other way.
Chart #1 shows dojis on S&P and QQQQ after the market pop has stalled.



SO I covered my inverse ETF shorts and went long. It was a bit choppy so I was long, short then long again. This time the trend carried right to the end of day.
Chart#2 shows SRS about the same time. Red line notes my entry



Chart#3 show where the QQQQ ended up for the day.



Chart# 4 shows SKF end of day. Red line entry, green line is my exit, $18+ run



Chart #5 shows SRS end of day. Red line entry, green line is my exit, $21+run. I took advantage of the huge volume to sell my position in milliseconds.

How I trade reversals

I changed my original post as the images did not line up with the text . See above for the revised post.