Profit Taking Pattern
Profit taking today. The Emini closed up 5.25 points at 1,389.00 on Tuesday. But watch out - there was profit taking by professionals going on. Do you know what pattern to look for?
Stopping Volume Pattern Chart
Yesterday's advance continued today. The Emini opened up 1.25 points above yesterday's close at 1,385.00. Once again the market shot ahead in the first 45 minutes, then continued to grind higher and reach a high of 1,393.00 around midday. The professionals then stepped in and took profits and the Emini eventually closed 4 points off the high at 1,389.00.
A useful profit taking pattern
Today's action is typical of professional profit taking. Range was below average at 9.75 points and volume was above average at 1.2 million contracts traded. The profit taking pattern I look for consists of:
- A new high
- Volume greater than yesterday's volume
- Range less than yesterday's range
- Close off the highs
The chart above shows occurrences of this pattern, labeled “stop”. If you use TradeStation then the EasyLanguage code is:
V > V[1] and Range < Range[1] and H > H[1]
Check out the daily chart of the NASDAQ and you can see the same pattern. Download the EasyLanguage code here.
Software Bug Warning: Occasionally on TradeStation tick charts a Stopping Volume pattern will be plotted where the bar's range is NOT less than the previous bar. This appears to be a TradeStation problem and luckily does not occur frequently. Thank you to Sam Beckers for pointing out this bug.
But trend intact
The intermediate trend started by yesterday’s strong advance appears to still be intact and today was just profit-taking mid-trend. However, if we break below 1,370, this could represent a change in trend and today’s action was part of forming a double top.
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