Dead Cat Bounce: Anticipate it For More Profits

 Posted by  Recognizing Patterns  2 Responses »
Jul 102015
 

A dead cat bounce is traditionally described (for example Investopedia) as “a small, brief recovery in the price of a declining market”. We day traders like to look at it a bit differently – because when we anticipate these bounces, we can take profits smartly and quickly.

Dead Cat Bounce, YM 15 Sec ChartFor us, a dead cat bounce is the pull back we see after a very strong reaction to a news item, or any quick, strong movement, either up or down. The typical behavior to a significant news announcement is very strong movement, very quickly. But, once that strong movement peters out, sometimes after only a minute or two, we get that bounce, where the market retraces towards it’s price point just before the news came out.

Here are two charts showing the same event: the FOMC announcement on March 19th, 2014. The first chart, as you can see in the upper left corner, is the YM (Dow index futures contract), showing 15 second bars.

The price action you see here is quite typical of FOMC day action. The market sits around, hardly moving, “holding its breath”, so to speak, waiting to see what the fed is going to do. Then, when the announcement comes out, the market reacts with big moves. Continue reading »

How Markets Move – Bull Markets Climb Stairs, Bear Markets Fall Out of Bed

 Posted by  Recognizing Patterns  No Responses »
Jul 032015
 

Bull Markets Climb Stairs, Bear Markets Fall Out of Bed, what the heck does that mean? It just means that, in general, if the market is climbing, it climbs more slowly, with stops and starts, and if the market is falling, it tends to fall fast and far and hard. Not always, of course, but this “rule” is one that is good to keep in mind, because it is often true.

Why You Should Know How Markets Move

Knowing how markets move, their tendency to trend fast or slow, with fits and starts or straight down, will help you in knowing when and how to enter a trade, and whether to “stay the course” or jump out with a profit quickly.

By “Market” I mean any index or instrument you might be trading. So, it applies to the S&P, to Google, to oil futures, to FOREX pairs. Let me show you an example:

How Markets Move Continue reading »