Monday, June 4, 2012
Small or no gap
When the gap between the last bar of the prior day and the first bar of the current day is very small (overlapped or less than recent bar), You can treat current day's price action as an extension of the prior day's price action, at least for the first hour or so.
Therefore, when a small reversal bar forms at the trendline from yesterday's down channel, its usually an acceptable trade, even on the first attempt as long as the signal bar is not weak (doji or overlapped). If you take it as a setup, you should expect it to take out the last swing from the prior day.
As the day progresses, a newer clearer trendline will form (b2,18) and will take precedence over prior day's action. Future trades should be evaluated using the recent price action of current day.