Under 20 Minutes: My favorite reversal setup

9/30/2022

I. Like. Reversals.

When going long isn’t cutting it and you’ve missed the move to the downside, you’re kind of limited in terms of trades.

That means you have to bide your time and stalk…

And eventually, there’s a mysterious alignment in the cosmos, things come into focus, and you catch the trade you’ve been looking for.

(Source: tenor.com)

The trade I look for — as the rest of the market goes full on harakiri — is the end of day reversal.

I’ve traded this over and over the last two weeks.

Now, it’s your turn…

Again, we’re looking at the SPDR S&P 500 ETF (SPY)… different time frame:
The 2-minute chart… Ever heard of it?

It’s a weird one, I know. Most day traders are on the 1, 3, and 5, but I prefer the 2, 7, and 12.

There’s an important distinction I want to make note of before we get started though: I only use the 2 and 7 on breakouts.

Why? Because it’s about rapid movement and getting the hell out with profits intact.

Onward…

On days where the SPY is flat or knifing, I notice that market makers have a hot tendency to burn everyone out of their positions in the last hour or so…

Think about it — if they sell an option to you, they want it to expire.

This is why I like this setup. It catches everyone with their pants down.

I’ve kept the chart simple because this is a trade idea that requires little to no work in terms of analysis.

Now, this is an example of the trade I took yesterday

Levels of Support and Resistance are clear here (neon green and red lines, respectively).

The gap down was rough for everyone who bought calls at the end of day on Wednesday and the anticipation was a further drawdown…

Check.

The first reaction rally? Yeah, that’s not a bottom. That’s something you fade into the last couple of hours until it stops working.

Notice the red arrows pointing out the above average selling volume…

Above average selling, but no real movement downward? Shorts are losing.

That’s the first clue.

Okay, so let’s go back to last week’s email about divergences… See anything?

Bingo.

Using the composite Stochastic from Chris Hood’s TRADECOMMAND tools, we’ve got a Bullish Divergence at the true bottom… You can use most oscillators for this, although I find Chris’s tools to be more accurate than any others I’ve encountered.

It also helped that the ATR channel was breaking into the green…

But the first bottom was early entry which I scalped with Sep 30 2022 $360 Calls and then flipped to Sep 30 2022 $355 Puts for a scalp to the downside.

These were quick range trades.

(I’d never send these first two trades out as ideas since you have to be Johnny-On-The-Spot.)

The BIG idea was the next trade when it broke through Resistance at $361.15. Again, I hopped into Sep 30 2022 $360 Calls…

The divergence was strong and as we already saw from the Volume, the shorts were losing their grip.

The result was a quick 20% in less than 20 minutes.

Look for this setup… Patience!

Keep moving,

(Disclosure: I have no position in SPY but intend to initiate a position in the next 30 days.)

This material is not an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed, and is to be used for informational purposes only. Any performance results discussed herein represent past performance, not a guarantee of future performance, and are not indicative of any specific investment. Due to the timing of information presented, investment performance may be adjusted after the publication of this report. There can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this communication will be profitable, equal any corresponding indicated historical performance levels or be suitable for your portfolio.

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