Edge ho! Setups off the starboard bow, me hearties… Arrrr
Today was an OUTSIDE DAY.
What does that mean? In the simplest terms whenever I see an outside day (or an outside bar of any length) I think
OUTSIDE DAY = LONGS GOT FUCKED AND SHORTS GOT FUCKED
Think about it. Both sides got whipsawed out of their positions. What that means for us is that we have NEW PARTICIPANTS in the market. A trader who took a position today has a different expectancy and tolerance for pain than a long term trend trader, or someone who got in at the lows last week.
The latecomer into the long trade (and the short trade) is by definition a weak hand.
Anything not going his way is going to make him jump to the other side. We have shot to new highs for the last 2 months. Rather than predict whether this is a breakout or a test and fail… lets be objective and let the market tell us how it likes (or hates) these lofty heights.
We have a valid sell signal on break of the daily low, fakeout sell. However statistically outside days are often followed by inside days, before a final breakout. You might consider holding your fire here. Also, statistically outside days most often occur 2-3 days before a market turn.
And statistically setups at the top of a flat bollinger band are higher reliability.
What does this mean? Get out of longs for now, be prepared to get short… and if the short opportunity which almost certainly happens here fails, get long again.