5.22.13 – New High & 330 Tick drop

Russell Recap

Russell Recap

Market Internals

Market Internals

From high to low..330 ticks!

It seemed almost too magical as price action went to the high of the 1 hour open range, a new high for all time and never saw the top again. Here I thought, maybe, just maybe today we would get a close above 1000. FOMC minutes released and it was headed south the remainder of the session. Market internals for the open were quite strong to push the Russell up to the new highs. 

5/34 EMA

5/34 EMA

25m Open Range

25m Open Range

Two setups that could not have worked out any better, smooth and easy to enter with solid trade management along the way. Explained in more detail below, the opportunity to take the earlier entry on the EMA crossover was avoided as FOMC minutes were not out yet and price was still inside the range. Downside targets were numerous. Did I attempt to guess where price action would stall and turn around. No, and I really don’t know anyone who really can. So, you do the next best thing. Have a stop and manage it on the way down.

1 Hour Open Range

1 Hour Open Range

Why did price never reach higher? 1 hour open range held the line and price action turned. This confirmation of the short was a useful chart as price dipped under 25m Open Range as well and sell off continued. Both open range charts made for confirmation of direction.

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Trade #1

4EMA Crossover

4EMA Crossover

2EMA Crossover

2EMA Crossover

EMA crossover on both my charts prior to market open indicating bias to the long.

Setup #1

Setup #1

Setup #1a

Setup #1a

 This potential could be the first entry if you trade off the crossover. Waiting for the 25m Open range would be the next option. With nothing but market internals moving up price action breaks the 25m Open range on the 5m bar and entry on the Heikin Ashi Range Tick at 1002.4 would be the entry. Supporting this move was price was also above Camarilla H4. 1st target would be weekly R1/Daily R2 and fib level at 1006.5.

Fib Extension

Fib Extension

Fib extensions are also another way to take off contracts on the way up and move your stop to each level as a new target is reached. Price action dropped at 45 minutes passed the open briefly on the Heikin Ashi candle and eventually peaked at what we formed as the 1 hour open range.

Trading Lesson: While the EMA crossover is tempting to enter and ride up for a 100 tick move today, I wait for the 25m Open Range with discipline and then take my entry on the Heikin Ashi range chart. All indicators on my side pointed long, question was which was to be my first target? Fibonacci levels? Daily R2? Weekly R1? Fib retracement level? Sure, I could probably find more resistance levels that would have me taking off contracts at every tick. I simply pick the ones that work for me based on my method. Don’t need anymore.

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Support

Support

Price action dropped back down to 25m Open Range High, Camarilla H4 level, 1 Hour Open Range Pivot and R1. Enough support to wonder price was going to lead. Soon enough, the setup for Trade #2 developed.

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Trade #2

Setup #2

Setup #2

The juiciest of trades for the day. While the temptation to enter on just the crossover, I stuck to my trading plan and was only going to enter under the 25m Open Range. Here is just seconds after the 5m bar was under the range and the Heikin Ashi confirmed downtrend. With market internals dropping, EMA crossover already confirmed on 2 charts and under the 25m and 1 hour open range, a short entry setup had a high probability of success.

1st Stall in Price Action

1st Stall in Price Action

Picking a target downside with the numerous supports from Cam, Daily Support and weekly I chose to remain in this trade without removal of contracts until I saw my first blue Heikin Ashi bar, with a long signal. Here you see S1 and Cam L4 and 1 hour open range S1 were holding price action.

Setup #2

Setup #2

Price continues to drop. No Heikin upside long signal. Remain in trade. Market internals support the short.

Setup #2a

Setup #2a

S2 was  HIT on Daily and 1 hour open range charts. Took off 1/2 of contracts at 992 as Heikin Ashi Long signal was stamped. Stop to B/E. Depending on your style of trading, you will either move the stop and/or take off additional contracts as rice moves down.

Setup #2b

Setup #2b

Fib level 5 hit and Weekly Pivot. 170 tick move since the EMA crossover, 100 tick move since the break of the 25m Open range. Greed set in? I’ll stay in the trade till I have a Heikin Ashi upside candle.

Setup #2c

Setup #2c

Price continues to drop to monthly R2 with no evidence of upside Heikin Ashi candle.

Setup #2d

Setup #2d

Upside Heikin Ashi blue candle formed. Contract off or move stop lower, I removed contract. Runner on.

Setup #2e

Setup #2e

This is where I like to watch the 4EMA and which ever comes first, my stop or the 5ema crosses the 18/21 – I will end the trade.

Setup #2f

Setup #2f

Runner still on. At this point, price testing the low and I’m considering to end the trade.

Setup #2g

Setup #2g

Confirming on my 1 hour open range chart and Daily support – S3 may just be the bottom of the day…or not?

Setup #2h

Setup #2h

Setup #2i

Setup #2i

I decide to remain in the trade as 5/34 EMA had not crossed over yet….and use the next target  weekly S1. Price turned around on market internal $TICK and I got out.

Trading Lesson: When the market is selling off, I tend to use my EMA more as management of my trade instead of support levels. Somewhere price will eventually stop. As long as I have my stop in place and a plan to take off contracts or move my stop to another level, I will profit from my entry. Using the Heikin Ashi bar is a strong indicator for trend change but not until it crosses the EMA.

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