Today's early trade on the Dax was almost a mirror image of yesterday.

My first trade was a long at a possible support (demand) area at 5660-5655 area.

I was stopped out at the low tick at 5652.5 when on review was the prime area for demand.

If we look at the first hour of trade a nice support formed at the 5652 area.

The re-entry average was 5556 and I managed to scale out for a total $ 1400 US profit.

My exit style can still be improved but the profits are starting to add up.

The key to profits so far today came from panicked retail traders selling into support!

Dax 3 minb.jpg (85.71 kb)

Just a quick entry to show tonights actual trades based on the professional/amateur blog.

My first short entry was as price traded to the opening high at 5640.

Price did move my way but was only a small retracement.

There was not enough supply at this area and I was stopped out.

The greater supply area was 5650 and my next trade short proved successful.

I scaled out  (maybe a little too quickly) with 1 contract left for a test of the day lows.

Last exit was at the logical bounce area which was a retest of the lows at 5620

Initial short trade loss was around $500 US. Initial winning short trade was $2000.

Total profit was $1500 US.

The importance of the demand and supply areas can be seen on the chart.

Demand at 5620 area. Smaller supply which became a demand area at 5637.5 and the greater supply area from yesterday's high at 5650 area.

The other important thing for me was to execute the next trade at a potential supply area even after my initial trade was a loss.

This chart shows my x-trader entries and exits with the the side arrow showing short entries and the small line showing exits.

The large line shows where the positions were closed out.

Dax 3 min.jpg (96.16 kb)

One rule for trading that I use is never be on the wrong side of an engulfing bar.

They are hazardous to your account.

On the other side of the coin, they can be very effective for entry criteria.

The importance of engulfing bars gains if it comes after a directional move.

For this bar to occur it must reverse the previous move from a new high and close below the low of the previous candle.

This requires a significant change in value perspective.

Engulfing bars.jpg (165.02 kb)

Anatomy of downside moves.

I thought it would be worth looking at the Dax 5 min chart on Friday and the SPI 5 min chart today.

Both had downside moves with the structure showing similarities which could be exploited when timing trades.

Trading inside bars that fail can help in capturing these momentum moves.

The move down in both cases was steep with little or no retracement until a large volume bar printed in both cases.

I call these exhaustion bars with a wide range and large volume signaling forced selling in the market.

These bars signal a potential short term momentum slowdown as buyers and sellers move to a more equal balance.

In many cases after a bounce, price retests these lows giving a gauge of directional strength.

In each of these examples price moved to new lows showing that buyers have only slowed downside momentum.

The new lows are showing less volume than the exhaustion bars but more than the retracement bars.

As the day progresses selling dissipates and we see higher lows form, setting up potential for buyers to take control.

Points to take away from these trend days.

Failed inside bars can be efficient momentum entries.

Look for exhaustion bars to halt the momentum.

Expect a retracement in the short term reaction.

Watch for a retest of the exhaustion lows.

Gauge how strong sellers are by the strength of the retest. (new lows show strength in sellers, higher lows show buyers getting the ascendancy)

Look for reversal bars which coincide with higher lows to time reversal trades.

SPI 5min exhaustion.jpg (125.59 kb)                            

Dax 5min exhaustion.jpg (117.93 kb)