Trend reversals are usually signalled by Exhaustion volume followed by volume Divergence patterns. The Exhaustion volume is the capitulation phase, where the final hold outs rush to join the trend – only to be the last ones in. It’s a reliable pattern and I love showing these “picture perfect” type setups.
But nothing is 100% (that’s trading I’m afraid). In the last 2 days we had two very nice reversal trades that set up without Exhaustion volume. Instead the 2,500 level on the Emini acted as a wall that couldn’t be breached successfully.
Monday’s trade had RAMBO patterns at 2,500 – that showed the Amateurs were leading the break and it was therefore suspect. Tuesday’s trade had a strong selloff – with Exhaustion selling volume – right around the 2,500 level, showing traders were anxious to take profits and get out. Both were nice Short trades.
Hi Barry, I took the breakout to trend trade today at 9:46, short at 98.25, out for 4, then quit for the day. I was a little hesitant to take this as ex buy and bear div was only showing on 500 tick chart. It worked for me this time, but i wanted to ask is this a trade you took or would have taken yourself given the less than perfect setup on momentum indicators? Really like these indicators and still learning. Dave B.
Hi Barry. I have to say I’m very impressed – today was picture perfect EMiniWatch! Small ramp up at the open to hit the stops above the big figure/yesterday’s high; Pro bars at the top on 4500 (and other TF’s); momentum divergence on 500; two LREPs for a reversal (the first one a bit aggressive I suppose); confirmation with break of 1500 support; and down move caught (maybe not, we’re still trading) by support on 4500. Neil S.
Good luck with your Emini trading this week.