Brief Market Update
Apologies, I had hoped to finish my post in the ongoing series on building trading systems, but I took quite a few trades today which need to be properly documented and reviewed before I stop for the day. Experience tells me that if I get behind I will quickly feel unmanageable and my trading performance will suffer. Sorry I have to put my own work first, and I want to make my post as complete as possible, omitting nothing.
Instead I have a quick point to make about the Stock Market. Yesterday we broke the high of the previous hammer candle, which should have attracted fresh buyers and seen us shooting to fresh highs. Instead we had total rejection of those highs and painted an Outside Period (down)/ Key Reversal or in IvanSpeak an OPd.
Typically this happens around 3 bars from a market turning point. Also, since the highest probability was for an upmove, when we have a low probability outcome you can expect a larger move. Therefore the highest probability is for some downside here
Looking at the weekly chart we are a low extreme on the VolStat (normalized ATR) which indicates an unsustainable low volatility and a potential turning point. The standard deviation of the recent weekly closes has already turned up, and this is a much more sensitive measure to an uptick in volatility. I would be very cautious here on swing positions, I think that we are near the upper zone of the channel and a significant retrace could be starting here.
Of course we remain in a strong and low volatility bull market so any downside is likely to be constrained by BTFD. If you are looking for a nice setup today this one is a beauty. Uptrend on daily weekly and monthly timeframes, a beautiful hammer candle in a strong uptrend, long on break of the high, stop at the lows.
Equally good is USDCHF, a daily shooting star candle after 2 days of sideways. Make sure you wait for a break of the lows