Thursday, July 7, 2011
Trade only with trend when bars are tiny
A large gap works like a spike and usually is a spike in pre-market trading. If the open does not produce significant selling, there is a very good chance the price will channel up. A sharp two legged move to the ema may produce a strong trend but a low momentum move with tiny bars may act like a WP and produce a channel type move.
When most bars are small and have one and have one or two tick bodies, the trend is very likely continue in the direction if the gap for the rest of the day. If channel is narrow, every short signal gives an entry mid-range, something that's very likely to fail.
The best way to trade a channel is to buy any bull bar after a failed L2 near the ema or trendline. Usually when the L2 is off an inside bar near the ema, you can often buy the low of the inside bar on limit with a tight stop.