More Trading Patterns Friday 1/17/14

Trading Patterns for Friday Afternoon 1/17/14

Friday afternoon going into the close had an additional 5 winning trading patterns and one small loss.

1/17/14 Afternoon Trading Patterns
1/17/14 Afternoon Trading Patterns

The 1st trading pattern was an exhaustion trade which was good for 2 ¾ points.  As noted in the previous posts if you used the ZoneTraderPro statistics and created a trading plan you would’ve exited the trade at its maximum favorable excursion of 1837.75.  There was 14 minutes for you to adjust any target from the time the blue counter trend zone 1st started to print, to when the market traded at that price.

The next trading pattern set up was an exhaustion trend trading pattern, which is the 1st trend pattern following an exhaustion trade.  This trade had a great set up with a higher tick high and a higher tick low going into the trade, and only one tick of adverse excursion once you entered.  The trade however stalled out after only 6 ticks, so what went wrong?  The 1st indication that something could go wrong is that the dollar is (and will continue to be) unfavorable to begin with, as indicated by the red background.  Just because the background is red however is not a reason to pass on the trade.  However when price reaches the red intermediate resistance zone the $TICK cannot make a higher high, and the selloff begins.

Pattern Trading Decision
Pattern Trading Decision. Stay with the trade with the $TICK making lower lows?

The $TICK in the lower panel is telling you that they cannot find the buyers in the cash market.  Additionally, when the market reaches the intermediate resistance zone there is euro divergence at that price.  At this point you should have considered moving your stop up to breakeven after the market had given you the 4 ticks a favorable excursion at the start of the trade.  What is also important to recognize is that there was high volume previously at the 1837 price level, and now all of these long buyers are underwater and looking to get out.

This sets up a great trend trading pattern, which has a lower tick low and a lower tick high going into the trade.  There is only one tick of adverse excursion in the trade is good for over 5 points.  So why did this trade end up being the best of the day?  This trading pattern had everything going for it from the start.  A strong dollar, lower tick low, a lower tick high, and a ton of long traders trapped in their position that are going to get stopped out.

This leads us into an exhaustion trading pattern which was an excellent set up, however was stopped out for a 4 tick loss.  Going into the trade, there was a higher tick high and a higher tick low which was TICK divergent at the low.  There was nothing to really indicate, other than the strong dollar, that this trade would fail.

This sets up a 2nd exhaustion trading pattern immediately following the trade which has a higher tick low as the market tests the previous low.  At this point the euro is additionally divergent and favorable for the trade.  This sets up one last trend trade with a higher tick high and a higher tick low going into the close of the day.

Nice day all around!

Trend Pattern Trades for Friday 1/17/14

AM Trend Pattern Trades

On Friday morning we saw 5 consecutive pattern trades with little to no adverse excursion.  The 1st trade was an exhaustion trading pattern which marked the bottom and had tick divergence going into the setup.  This trade was good for 2 ½ S&P points.

1/17/14 AM Pattern Trades
1/17/14 AM Pattern Trades

More Trend Pattern Trades

As the exhaustion trade was completing we saw the tick make a higher high which led to the setup of the next trade, the exhaustion trend trade.  You also notice that the software is also indicating a trend trade at this location.  This does not mean that because there are 2 arrows you should double what you normally trade or that this trade has any less risk because of the additional pattern.  It only means that the algorithm identified two patterns.  This exhaustion trend pattern trade had 5 ticks of risk or less as a stop loss, and had a profit of 3 ¼ S&P points.

A big ZoneTraderPro advantage is knowing where to get out of a trading pattern based on the blue counter trend zones.  The blue counter trend zone began to print at 10:03:42 EST and the market traded at that zone at 10:06:41 which gave you 3 minutes to place a target at or below 1837.25.  The reason this is important is that the statistics indicate that approximately 50% of the time the market will not trade through the blue counter trend zone.  So knowing this you can establish a trading plan that takes profit at a fixed amount or just short of the blue counter trend zone.

This sets up another trend pattern trade worth another 2 ¼ points which had no adverse excursion and a higher tick low at the entry point.

This trade then sets up an additional trend pattern trade worth 3 ½ points and only one tick of adverse excursion.  During the trade an interesting trading decision is going to have to be made so let’s analyze it.  After the market traded four ticks through the red intermediate zone there is a 4 tick selloff.

11714 Pattern Decision. Take Profit or Ride it Out?
11714 Pattern Decision. Take Profit or Ride it Out?

 

The 4 tick selloff is not what is concerning, it is the red dot which shows that a lower tick low has been made.  Normally it is a bad idea to stay in a trade with the tick filter has told you to get out.  At this point however good trading practice would have you moving your stop loss to breakeven, so this is a free trade.  The reason you would want to consider staying in the trade is because of the fact the market has traded 4 ticks through the red intermediate zone.  When this occurs, it is more likely that the market will trade to the blue counter trend zone, which it eventually does.  As noted in the paragraph above, the blue counter trend zone starts to print at 10:40 EST, and the market trades there 22 minutes later.

That lower tick low then sets up an exhaustion trading pattern with tick divergence at the market top, giving you 5 winning trades in an hour and a half worth a total of 13 ½ S&P points.