Thursday, October 20, 2011
Anticipating mid-day reversals
When an AM trend breaks out from the opening range, its very useful to know if the trend will run to the end of the day, break and turn into a horizontal range or reverse and attempt to take out the other extreme of the day.
One of the earliest signs of an impending mid-day reversal is display of strength in the early bars. b7 and b9 today demonstrated the willingness of buyers to buy with strength taking out stops of bears. Generally strong counter-trend activity at a given price indicates a potential stronger activity at a better price.
So when you see a potential reversal such as b34,35, its a good idea to exit your trend positions on the AM trend and look to enter on the reversed trend, which could run for the rest of the day or at least until it takes out the prior extreme (b62).
Days that open very close to the prior day's close and trends that break out of high areas of congestion are likely to reverse due to the magnetic effect of a tight consolidation area.