Wednesday, July 6, 2011
Normally whipsaw represents strong conflict but is definitely a trading range (b1-b7). The most likely outcome is a breakout and reversal (b10,11) leading to a trend (b11-b43).
The market is possibly in whipsaw if two long and two short orders have been stopped out (b1 long stopped below b2, b2 short stopped above b3, b3 long stopped below b4, b5 short stopped above b6). At this point, the best course is to stop trading and wait for a breakout and its reversal. Whipsaws rarely breakout and continue in the direction of the breakout (but it does happen occasionally)
A safer entry is the first pullback after a reversal (b16) or if the breakout is towards the ema, a fade of a two legged move to the ema.
Whipsaws early in the morning can have aftershocks in the PM (b68-b74), so caution must be exercised once the trend breaks (b43-48) and forms a trading range.