Here’s the trade setup:
- Emini makes an exact Double Top (high of each leg up is exactly the same)
- We don’t sell off much and come back up to test the previous High
- Take a Long trade under the previous High with a target 1-1.5 points above the High
- The Stops sitting above the previous High will get run
- You might need to finesse your exit if your target is not immediately hit
The Stop run is almost guaranteed – it’s too juicy a trade for the Pros to ignore. They know the Stops are sitting there and all within 1-1.5 points of the High. And I think the same psychology works on the way down for a Short trade.
Enjoy your long weekend and good luck with your Emini trading next week.
Transcript of the video
It’s Saturday, February 14, 2015, and it’s Valentine’s Day. A little bit of blustery weather here, in Hawaii. It’s nice and warm but all this wind has blown out the surf. So, thought I’d do a little bit of a video. A little of a recap on Friday’s trade because Friday was really interesting for two psychology-driven patterns.
We had a busted out triple top. I’m calling it the mythical triple top. Then we had a nice little feel good ramp at the end of the day into a long weekend. Just want to talk about the psychology, then of Friday’s trade.
On Thursday, we had a nice little strong day, ended up on the highs. I always say, after a strong day like that, expect some follow through the next day. Follow through happens because a lot of people are looking at their charts, looking at the market at the end of the day. They’ve got regular day jobs. They tend to be momentum players and they see a strong day and they think, “Oh, better jump in. Better buy stuff the next morning.” So, we always get a little bit of buying activity, first thing, after a strong day like that. So, I say, wait until the exhaustion patterns happen during the full liquidity of the day. So, when all the professionals have taken advantage, if you like, of that activity.
Here’s the close on Thursday and the open on Friday. There’s this little momentum burst that we get first thing. We do get a little exhaustion sell there. Someone’s anxious to take profits at that point but wait. Wait until we get that exhaustion behind the bearish divergence comes in, before taking any reversal trade. It was a nice little reversal trade but ended up with exhaustion sell and we bounced from there to the end of the day.
First of all, let’s talk about this mythical triple top. High is made, first thing, and we come back and revisit that high. We revisit that high at the exact same price point. The high of this bar is exactly the same the high of these little bars here. So, that’s an exact double top. Totally legitimate pattern there, an exact double top. We can definitely get reversals from there but it’s an exhaustion buy at that point. We’ve not seen the bearish divergence come in, in order to show less buying happening from which we’ll reverse. Also, pull back to dirty end of trend. When we see exhaustion pattern on the end of trend, I say wait for the second cyclical turn after that before doing anything. So, just give it a little bit of time to workout that bearish divergence. It’s a dirty end of trend, which means the pullback level was violated, down here. We went below that support and therefore, it doesn’t print an end of trend but that’s what I call a dirty end of trend signal.
So, got everything lining up here for a potential reversal here, from which we do. But, when we come back the second time here, for this double top, exact double top, that is the pattern we could get a reversal from. That was definitely something that could end up being a reversal point. But, when we come back to it, the question is, are we going to bust through it or are we going to turn away?
Now, because we’ve not seen the bearish divergence signal come in, we’ve not seen less buying happening at that point. The chances are that we’re going to go up, in order to make that bearish divergence pattern, and will we actually back away at that double top? Or, will we form a triple top, from which we reverse or bust through it?
I say this. To get three price points, exactly the same there, is almost unheard of. It’s a mythical thing. It’s like the Loch Ness monster. An exact triple top does not exist. The reason for it is that all the people that have played this double top, at this point here, have said, “This high, this price point, is really important. I’m going to place my stop above that.” All the pro’s know that those stops are just sitting there and so they’ll try and gun them. Gun those stops, play them out and you can use that to force people out of the market to make a little bit of money on the bust up trade and that’s exactly what happened.
As we’re coming up to this previous exact top, it is not going to back away at that point. You know it’s going to get run through by a point and a half, two points, something like that. Because that’s where all those of stops are sitting there. Sitting within a point, a point and a half of those previous highs. That’s good for a little bit of a bust up trade.
If you’re into this, after the break, at this high blue fresh bar, down here, adjust your profit target accordingly to take advantage of that activity going on because you know those stops are sitting there. The pros know their stops are sitting there. They’ll try and bust those up.
So, an exact triple top, where this high is the same as this high, is the same as this high, and the market reverses does not exist. Third time around, they’re going to try and gun those stops because they know they’re there. It’s too easy a trade to take and will bust up through there.
If you’re looking at Friday’s trade and trading that bust up, you can see. When those stops hit, bang, that was like cascading up. It happened instantaneously for like a point, point and a quarter move there – bang.
I had a little trade into there. I only picked out two points out of that. It was good for four, I think, because I was in an 88.75 and I think we got to 92.75. No, 92. So, it was good for three but when I adjusted my target, I didn’t get hit at the three. So, I just got out for two but it was good for a little bust up trade there. Just remember that as a little psychological pattern. The mythical triple top does not exist. They’re going to run those and we’re going to put a pattern like that. That was the first one for the day.
The second one was, we had a reversal. The 11 a.m. reversal window comes along. Here’s 11 a.m. We started reversing, it was looking good. Went into an exhaustion sell, saw blue professional bars come in at the lows and we just bounced from there.
It was a classic. We’ve got a long weekend coming up. I think, it’s President’s Day on Monday, so the market’s shut on Monday. Everybody’s going to be looking at their charts. All the amateurs are going to be looking at their charts over the weekend thinking, “Wow! The market’s making new highs. This is fantastic, blah-blah-blah.” That is gamed up.
The professionals want it up there. The people managing the money want to encourage you to invest in the market. Put your money to work in the market. They want strong closers, record highs, particularly on long weekends where people have time to check things and do things.
Come Tuesday, they’ve got buy orders rushing into the market because the market ended up so strong on a Friday. That’s what they want. They want to bust this thing up to nice closing highs in order to give everybody a good feeling over a long weekend rather than get them scared.
So, if we had a reversal day on Friday where this thing had declined and then kept on going down, whoops, people over a long weekend would be worried. They’d be thinking, “Well, markets down 1%, 1.5%. Maybe, it’s a good time to take profits on my long trades or whatever.” So, that’s not good. Professionals do not want that. The people who are managing money don’t want that. So, they can game this thing into the close, to give us a nice strong close. So, that was it. It was a very nice ramp up into the end of the day. Closing at record highs.
Again, one of the reasons you knew it was going to go through these highs, because they needed that strong close. Closing out the highs like that and that’s the way the game is played, I think.
So, there we go, two nice little patterns. The mythical triple top that is not an exact triple top that does not exist because the stops get run. And one of those feel good ramps into a long weekend with a nice strong close that was engineered by the people that need it.
Anyway, hope you are enjoying a long weekend, and if you’re a romantic and out there on Valentine’s Day, I hope you enjoy yourself.
Cash reverse going along 88.75. Shouldn’t stop some ties. We have to change that tide but let’s just leave it for the time being. So, we just do not want to break. Rambo and blue professional bar stopped it.
And blue professional bar coming here with a little sequence. We’re just busting through a resistance here on 500. So, we have not put in bearish divergence here on the 1500. So, that’s probably what we’re going up to do. And we’ll decide 90.75. Yup, takes it time to roll around it.
We will get a reversal. It’s 9:51. I think we’ll do it before the opening of the window but not quite yet. So, let’s just see where we get to and I’ll think about moving that target.
This is interesting actually busting up to previous high, 90.75, which double top up here and through resistance again on 1500s. [inaudible 00:08:47] but they could be hunting more stops up there. Not putting bearish divergence quite yet but, if we hit that, we’re going to run some stops. Like, second time around, double tops okay but triple top, no. That is not okay. That’s, we’re going to bust through to it to spike through there. So, let’s just see what happens.
Woah, did you see that ladies and gentlemen? Woah, when that thing ran and we busted those stops, bingo. Up to 92, so exhaustion. That’s a bearish divergence, so got to be careful up here.
Total sitting at 92.75. I might not be greedy. We’ve got to go, probably pull back on the trade on that, probably some blue professional bars to run but I’m anxious to maybe jump out a total to 91.75. Just looking for three on this. No blue professional bars coming here. We’ve got to maybe pull back on end of trend on 500. Could easily go above 92, but that’s spiky. This is second cyclical turn off the end, dirty end of trend. Just come on, come back up.
After we did that stop run, that was spectacular. Now, just down 90.75, just for two. That’s showing 91.75 did get hit. Didn’t take me out and I’m just a little bit weary and nervous up here because we finally put in the bearish divergence on 1500. So, this is pull back dirty end of trend and then the bearish divergence comes in.
When the exhaustion happens on the end of trend signal, we wait for the second cyclical turn and then we busted past it. There’s no blue professional up bars here but this is pullback to end of trend going off a bunch of amateur bars, up here, after a little bit of exhaustion. So, got all bearish divergence, and this spike up.
It’s almost like, I don’t know, it’s almost like a bit of a complex correction here. It wasn’t pull back end of trend here but it was close. So, what are we 10 a.m., we’re still within the window for a reversal, so I’m just going to keep watching and see what happens next.