Monday, July 11, 2011
Trends dont turn around easily
With-trend traders are always at an advantage and the reason is that trends don't turn around easily. Especially strong trends that have a strong first leg. Today there was a channel like move from b6 onwards until an obvious trendline break (b19-b29). The channel like move very likely means there would be a second leg down, which would take out b19 low. This was met at b46. However, buyers of b46 or b47 were disappointed when the trend did not just reverse to bullish. They may have tried again at b61 (3 pushes down) ad then again at b65, b68 and b72. All those attempts failed because trends don't reverse very easily. Most faders are in too early and pay for it. The large gap and the channel like first leg is an indication of strength and without a strong overshoot, the likelihood of reversal is low.
In general, a 1 legged move to and close beyond the ema (b72) is a good sign that the trend may have ended or at least the counter-trend trades are likely to be profitable beyond the one and two point scalps. Until then, every entry is speculative and if you do enter, exit unless the entry takes you beyond the ema without pullbacks.