Multiple TICK Divergences

Multiple TICK Divergence Calling Tops and Bottoms

Friday’s trading saw some very profitable trades with tick divergence and the exhaustion pattern.  At approximately 1025 a.m. the market bottomed and the ZoneTraderPro exhaustion trade was indicated which included tick divergence.  The previous low tick was a -704 and as the market traded exactly at the blue counter trend zone the tick was only in -531.  The resulting trade was worth 4.5 points.

Next we saw an exhaustion and exhaustion trend pattern immediately following that trade and again marking a short term market top.

But followed next was again another successful exhaustion trade followed by a successful exhaustion trend trade.  You’ll notice that the exhaustion trend patterns also have a typical trend pattern indicated.  There is nothing special about the fact that 2 arrows are indicating the trade.  When there are 2 arrows it does not mean there is twice the likelihood of success.  It only means the algorithm was satisfied for both patterns.

12/13/13 TICK Divergence Trade
12/13/13 TICK Divergence Trade

 

Later in the day at around 1230 p.m. we have an excellent example of a typical trend trade.  Going into this trade we have a higher high tick and a higher low tick, which results in a successful 3.5 point trade.  But what happens next is very interesting because we see low-volume on the way up and tick divergence exactly at the blue counter trend zone.  As you can see from the following picture the market rose on very light volume at 1772 to 1773.50.  This is a situation called no demand.  When no demand occurs, what is happening is that sellers are lifting their limit orders and allowing the market to rise on very light volume, and are then becoming the smart money sellers.  This is also the reason why you see the tick divergence, because nobody at the NYSE is buying the physical underlying stock either.  There was a previous high tick of 827 however when the market traded 2 points higher the tick could only reach 552.

12/13/13 Light Volume
12/13/13 Light Volume

 

After the market trades at the blue counter trend zone the market fell 7.75 points.  What was the reason for the nearly 8 point drop in the market?  Look at the extremely congested area around 1771 which traded between 1215 p.m. and 130 p.m.

12/13/13 TICK Divergence and Trend Pattern Trade
12/13/13 TICK Divergence and Trend Pattern Trade

It was this large number of contracts that was suddenly unprofitable and saw their stops being hit which resulted in the nice selloff.  It is also important to notice that the ZoneTraderPro tick filter told you around 140 p.m. at the market was going lower.  The ZoneTraderPro tick filter is the solid red dot underneath the bar.

Pattern Trades 12/05/13 – 7 Winners in an Hour

Pattern Trades 12/05/13 – 7 Winners Worth 22 S&P Points in an Hour

The morning started out with a very nice series of pattern trades.  The market opened and traded to a bullish countertrend resistance.  This would normally setup a long trend trade, but that trade was destined to fail and the chart told you.  The TICK could only reach a -22 as a high.  It traded for about 4 minutes at this zone, and over 15,000 contracts were bought on market orders.  Nobody was buying at the NYSE and somebody was selling every ES contract that they could.   Additionally the dollar was bearish towards trades.   The market traded through the intermediate support and that setup a perfect reversal trading pattern.

Reversal Pattern Trade

With the 15,000 contracts sold at 1790 providing resistance, the market trades to the intermediate resistance zone, there was a lower low tick at -696, and a lower high at -177 as the market reaches intermediate resistance.  The dollar is still bearish.  Now the people holding losing contracts that they bought at 1790, see this retracement as an excellent opportunity to cut losses and get out.  ZoneTraderPro users see this as a perfectly setup trade that yielded a possible 3.75 points.

12/05/13 Pattern Trades
12/05/13 Pattern Trades

Exhaustion Trading Pattern

Price next trades into an exhaustion trading pattern, that has 4 ticks of adverse excursion, but only 83 contracts traded at 1785.00, meaning that if you used NinjaTrader’s Sim Stop feature, that trade would likely have not been stopped out.   This trade had a divergent TICK low.

Exhaustion Trend and Trend Patterns

An Exhaustion Trend Pattern that has a higher tick high and a higher tick low, and the dollar has turned bullish.  This trade was good for 2.5 points.  The exit from this trade illustrates the need for ZoneTraderPro. The blue countertrend zone sat at 1788.75.  The statistics say that 50% of the time thee market will not go through this zone, so if you placed your target at 1788.5 you had the proper target to exit.

Next there is a trend trade pattern with all the same setup as the previous trade.  Again the market traded 1 tick short of the blue counter trend zone.  If you did not exit using  ZoneTraderPro charts and strategies, you just gave up 3 S&P points of profit on each of these trades.  This leads to another trend trade worth an additional 3.75 points.

12/05/13 Pattern Trades
12/05/13 Pattern Trades

 

Market Tops with Divergent Exhaustion Trading Pattern

What follows is another 3 winning trades with the exhaustion trading pattern marking the top with a divergent TICK high.  When this series of trades finishes with a trend trade that is almost 5 points, less than 1 hour after the open, there as been 7 outstanding winning trades which yielded a staggering 22 S&P points, with two losing patterns totaling 2.5 S&P points.  This all occurred in the 1st hour.

TICK Divergence

TICK Divergence and a 6.25 point selloff

There was an interesting pattern that occurred on December 2 at 1252 p.m. which illustrates why it is important to understand tick divergence, volume analysis, and the ZoneTraderPro theory.

We first see the market trading heavily within a one point range with the top at 1805.50 which develops into a trend trade which failed.  The market traded between the red and green support and resistance zones, which is indicative of an accumulation or distribution pattern and this pattern is described in the trading manual.

Next we see heavy volume at the blue counter trend zone at a price of 1807.  There were 9,000 contracts that were bought on market orders at this price level.  There was no Tick divergence here as the market traded higher on a higher tick.

The market then traded to the pink strong trend resistance area and touched it exactly.  Again there was a tremendous amount of contract volume at that resistance zone.  There were 25,000 contracts bought on a market order at this resistance zone.  It is important to note that once the tick made its high at 1221 p.m. it began to fall steadily in break the upward trend line.  When the tick first reached strong trend resistance it had a value of 536.  However when the tick reached and touched strong trend resistance its value was only 13 and this illustrated a strong Tick divergence.

By looking at the tick on the lower indicator on the ZoneTraderPro chart you can see the tick had entered a bearish trend channel leading into the selloff.  What is also very important to look at is the number of contracts that were traded at both the blue counter trend resistance zone and at the pink strong trend resistance zone.  This is the reason why you get a six-point trade from the divergence.  So much of the dumb money had bought contracts while the tick was selling off that the stops were hit on the way down.

Taking a trade at the strong trend resistance zone can be justified due to the high volume of contracts bought on market orders and the divergence in the tick if a tight stop is used.  Nothing larger than a six ticks stop can be justified here because of the large amount of contracts that it also been sold on a market order.

Tick Divergence on 12/02/13
Tick Divergence on 12/02/13