Pre-open Scenarios

Yesterday’s bar was monstrous and red. It went way beyond making a new low. With levels breaking and staying broken we are clearly in an accelerating downtrend, but where will it stop? When will the bear squeeze come and how will I get on board? And if that is not yet where we’re at, where are the safe levels to short, where there’s reasonable stop that makes PA sense?

The one month chart shows how the moves of the past few days have left many gaps on the chart.

With successive fast moves ON, and the headlines full of stock market terrors, I thought we could be in for a monster bear squeeze. The alternative scenario was that we fill some gaps and then break back down. The H4 chart on the left show the former, while the H1 chart show the key levels that would likely define the second PA form.

What the market looked like at the end of the day

This is the M5 chart of the day’s action: each time SUP 1 breaks we see 25 to 30pts come off the market and then a reversal. It filled the futures gap at a 10936 at the futures open but after that, the high was 10928 and the then 10930. 
The buying  below SUP 1 just after the open show more clearly on the 3Min and suggests higher – but this is no bear squeeze as pauses at the 169, retests TLs and then fails to fully close the futures gap.

Key points about today’s charts:

  • With such a skittish market, it was hard to trade the first hour today.
  • With hindsight, you can see that buying and selling extremes using the 3Min Bolli would have worked well, but without levels to trade against there is no setup for me.
  • The futures gap didn’t quite fill and these levels normally get hit on the nose – was there anything special about 10928 to 10930 that got in the way or is this just one of the days when the trade didn’t set up
  • The SUP 1 level is clearly active and eventually, the market goes straight through and hits yesterday’s low, selling off from the third hit of 10930.

How effective was my Neutral Zone? Longs and Short both worked while inside the zone and the lower edge of the zone was clearly an active level – indicated by the compression around it and then the speed of selling after the break.
How precise were my levels? SUP 1 was active and was tradeable and the same is true of SUP 2 which saw a compression and then a breaks. The issue today was more that I was missing levels and couldn’t find good reasons for the reversal locations.

What I did

09:02 Buy x 91 @ 10877 | M1 TL Break by hand | P&L = -1R
09:06 Sell x 24 @ 10861 | NONE | P&L = -0.6R
09:15 Buy x 49 @ 10863| 3P HLR | P&L = -0.6R
09:21 Buy x 89 @ 10862 | M1 TL Break by hand | P&L = +2R
09:33 Buy x 90 @ 10881 | M1 TL Break by hand| P&L = +0.8R
09:39 Sell x 100 @ 10892 | M1 169 Reversal| P&L = -1R
09:43 Sell x 100 @ 10900| M3 169 Reversal | P&L = 1R
10:01 Sell x 91 @ 10876 | M1 TL Break by hand | P&L = -1R****

TOTAL = -0.34R

*** This trade was officially against the rules as I took it after 10:00. My 10:00 to 11:00 trading is breakeven but at the moment, I am focusing the first hour only.

Today’s most gorgeous setup

This was the 3P HLR just after the open. The market opened with sell orders and then we started to see long wicks and buyers finally able to make some headway.

You can see buyers are active at the open, and then they start to win – in true Dax style the market makes a swift new low to get the bulls off before a nice 50pt run up.

For reference: 3 month cash chart at COB yesterday

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