I’m providing a brief recap of our trading session yesterday as a team and giving an inside look into some of the concepts I work on with clients in our coaching sessions.
Taking a look at the E-mini Russell 2000 Index (RTY), I wanted to walk through how our trading model identified a near-term short opportunity from both a price perspective and a cycle perspective.
When we look for near-term, or day-trade, opportunities we always start by looking at the 30 minute chart and working our way down from there. On the chart below, the left-most red circle highlights what we call in our trading model a “Real Money Candle”. It’s very subtle here and it’s better seen as 1 large candle on the 30 minute chart, but the key is that it represents where today’s move to the downside was ignited.
You can see that prior to this, the market had been trading sideways in a tight range along the Pi Line, while the bands started to roll over negatively. The cycle, as indicated by the stochastic oscillator below, was also very high at this time.
Once price started moving lower and it began taking out some previous lows, the edge was to play this bearish trend from the short side. Price pulled back to retest the area of the break, held the Pi Line and the 200 MA, held the top of the negatively sloping bands, formed a bearish topping tail candle, and even the cycle became overbought. With so many factors aligned, this bounce within the downtrend was a terrific opportunity to enter short.
Zooming into the 5 minute chart for a closer look, we again see how price was restrained by the Pi Line and the 200 MA, with the cycle very high and overbought. A good spot to enter was after price bearishly engulfed the last white candle and broke lower.
We had another opportunity today to re-short this downtrend on a bounce back into the bands, and then we covered some of that into new lows, with the short-term cycle very low and oversold.
We would look to re-short both of these markets on any bounce back up into the bands, but those entries would need to be timed up with their respective 15 minute and 30 minute cycles.