Epilogue – 8/4/2021

My notes for today appear in the chart above. I got chewed up for 15 points per contract wading through the first few bars of the morning. My entries were right, but I was too slow to exit for my profits. So I abandoned the project and waited for the larger wedge reversal. I got my money back (a dangerous thought process) and ended up with a net of 14 points per contract. I did not take every marked trade, but it is still useful to review them as potential entry and exit points with the notes.

I tend to be more of a “swing” trader even on the 5-minute chart. Sloppy, choppy action like this morning was more conducive to limit order trading working both sides of the bar. All the bars that help you in a trend day tend to reverse in the opposite direction in a trading range. So the winning strategy is placing limit orders to sell a few ticks above the top of big bull bars and buy a few ticks below big bear bars. If you are new to trading, don’t try this at home. This morning, I was too slow to adapt. When I lose money on two trades in a row, I always step back for at least an hour.

Another edge today was knowing what happened yesterday. An inside range day typically follows in the wake of the Spike and Channel Trend day, especially of the magnitude we experienced yesterday (Wednesday). The market will often correct back to the start of the Spike Channel and then reverse back in the direction of the trend. This usually forms the trading range with a double bottom and ends up serving as a bull flag.

The market ran out of time to complete the pattern yesterday, so the market completed the rest of the textbook response today, as demonstrated on the 5-minute chart below:

Of course, we will need tomorrow to see if today will serve as a bull flag.

Even without this information to guide you, market internals and the opening behavior telegraphed a range day this morning. You want to know where the open level is on such days, as it is likely to form the center of the range. Too far from it, price snaps back to the open like a rubber band. Also, most moves from the bottom to the top of the range and vice versa are two-step patterns and/or three pushes that form wedges. Knowing this can help you anticipate peaks and troughs. On range days, I also run the Volume Weighted Average Price (VWAP) on a separate screen with standard deviation bands to help me frame the top and bottom. See the chart below:

What also can be interesting is that even though we knew what to expect today, and we had our pre-market targets, the 5-Day EMA line on the bottom and the monthly open at 4408 on the top concurrently framed the range. Coincidence? Likey not, just more complicated math. I have mentioned several times how important this month’s opening price will be as the 7th month in a sequence of positive bull bars. Six months in a row is rare enough, but 7? That remains a primary concern. I don’t know if we can close above it or how far above it if we do. But then again, I always underestimate this market.

Stay tuned.

A.F. Thornton