Market Minds

The morning session - continuing over from a pattern into yesterday’s close - gave us an excellent example of a bear flag that I’d like to show you as an educational reference on trading tactics and “Enhanced Flags.”  Let’s take a look: We’re seeing a TradeStation chart of the 5-min SPY along with the 3/10 Oscillator and the TICK. I must say this flag took me a bit by surprise thanks to the final push up into yesterday’s close, but that also serves as a reference of ‘real world’ trading. The flag began with an initial impulse lower (”pole”) into the 1:30pm CST lows of Monday.  Impulses are impossible to predict in advance. Then, a 45 degree angular retracement formed which allowed for the drawing of two trendlines as shown, as price retraced back to the confluence of the 20 and 50 period EMAs… setting up the “Flag” portion and triggering the trade entry for the pattern. The ideal entry occurred just after the “Shooting Star” candle at 2:35pm CST as price had retraced upwards into the 61.8% Fibonacci retracement and the 50 period EMA - both expected to serve as overhead resistance if indeed this played out as a bear flag. A stop-loss would be a minimum of 10 cents (1 @ES point) above the 61.8% retracement, which often serves as the ” Line in the Sand” between the maximum retracement of a successful vs unsuccessful flag pattern.  Aggressive traders might have even decided to place their stop above $108.00 which was the price high of the pole. As for the Target, I like to take a 100% Fibonacci Price Extension/Projection (as shown in my prior post on “ How to Project the Measured Move of a Bull Flag “) from the top of the Flag to project a minimum objective.  In this case, the minimum objective was $107.03… which as you see was quickly exceeded. The next target might be a 138.2% “Fibonacci Extension” of the impulse (instead of 100%, which would be a perfect “measured move” of the impulse, a 138.2% extension is more in line with how the Fibonacci Extension tool is used) which came in at $106.76.  The absolute low of the day - and of the pattern - was $106.75.  Impressive. Many traders like to exit positions at such targets and consider “flipping and reversing,” meaning to buy on any bounce off of a price target - that is an aggressive strategy. The one caveat to note about this bull flag was the final “swing up” into yesterday’s close which was a red herring and may have led to some premature stop-losses being triggered for those who entered short expecting a Bear Flag to play out - otherwise, strict day-traders would have exited on the close.  Only swing traders who endured the pullback into the close could have taken full advantage of this bear flag

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Lessons from Oct 13 Morning Ideal Bear Flag