The price action on Wednesday was quite interesting from an intraday perspective. I've posted a chart of SPY below. What sticks out to me it the fact that there were two extreme price moves in close proximity of one another. The chart is a five minute chart, which is the intraday chart I look at most often. Notice the two arrows with notes attached.
When you get a strong and steady move like was seen from 10:10 to 10:55 or in the opposite direction from 11:55 to 12:25, one indication that it may be nearing its end is if a large range bar is posted.
To help illustrate this concept I ran some historical studies. The first one looks to sell short any time there have been at least 6 up closes and the most recent bar makes the largest rise of any bar in the move. It then sells “X” bars later or at 4:00 – whichever comes sooner. No trades are taken before 9:50.
When you get a strong and steady move like was seen from 10:10 to 10:55 or in the opposite direction from 11:55 to 12:25, one indication that it may be nearing its end is if a large range bar is posted.
To help illustrate this concept I ran some historical studies. The first one looks to sell short any time there have been at least 6 up closes and the most recent bar makes the largest rise of any bar in the move. It then sells “X” bars later or at 4:00 – whichever comes sooner. No trades are taken before 9:50.
As you can see, selling into this extreme move has a positive expectancy from 5-50 minutes out.
The second study looks at exactly the opposite formation. It buys the SPY any time there have been at least 6 down closes and the most recent bar makes the largest decline of any bar in the move. It then covers “X” bars later or at 4:00 – whichever comes sooner. No trades are taken before 9:50.
The second study looks at exactly the opposite formation. It buys the SPY any time there have been at least 6 down closes and the most recent bar makes the largest decline of any bar in the move. It then covers “X” bars later or at 4:00 – whichever comes sooner. No trades are taken before 9:50.
Again you can see that the edge is for a counter-move rather than a continuation for at least the next 5-50 minutes.
The large bar after the steady trend many times signals a blowoff. It can be a good place to take profits if you are in a trade, or perhaps begin to look for a reversal. This is not a daytrading system by any stretch, but it does illustrate a concept that daytraders may want to keep in mind.
The large bar after the steady trend many times signals a blowoff. It can be a good place to take profits if you are in a trade, or perhaps begin to look for a reversal. This is not a daytrading system by any stretch, but it does illustrate a concept that daytraders may want to keep in mind.
2 comments:
Hey Rob,
Seems to me...I see this type of pattern on intraday bars work well when selling into a declining 50ma or 34 ema...or buying as price approaches a rising 50ma (5 min bars for example)
Have you ever looked at this type of concept on a larger time frame?
Thanks Red.
I suspect it will work on a larger time-frame as well. I'll look into it in the near future.
Rob
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