Tuesday, December 01, 2015

What's there not to like?

It is not often that I post up a potential set up before it decides whether to trigger an entry or not. It is even rarer for me to trade one of the major indices. However, I was struck by the current set up on the chart of the Dow (see below). The S&P and Nasdaq are also showing similar characteristics and price structure.

There is a lot to like here:

  • Price tightly consolidating just below prior highs over the last 10 days or so;
  • There has been a rally off the August lows which is creating a pattern of higher highs and higher lows;
  • This will, in time, lead to a contraction in the volatility factor indicator;
  • The 2ATR measurement has now dropped to the pre-August slump levels - in my case, this directly affects position size.
"If there is a sudden expansion in a market that has been trading narrowly, human nature is to try and fade that price move. When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of the expansion" - Paul Tudor Jones 

To me, this is a compelling set up and one I shall be watching closely.

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