Using confluence to time trades

I didn’t know what to make of the gap lower this morning if I’m honest. Was this the start of another heavy down day or were the stops just being flushed out for a press back into yesterdays range.

Usually after a trend day you can wheel out your support and resistance plays, using the prior days levels as a guide. But today was a gap right out of the range into levels not seen for a while.

However the overnight trade revealed some levels of interest. Any levels during the overnight trade need to be treated with caution though:

I decided to sit back for a while and let the market show me a trade, I was still unclear what the most likely move would be. So in this situation I don’t guess or force a trade I just let the market tell me and structure a trade from there.

The market took off and rocketed upwards, plenty of strength, small pullbacks were bought and it was reaching for the gap fill.

So now I had 2 possibilites to work with:

1) Buy a pullback, target gap fill
2) If the gap fills, go short on an exhaustion above it.

The market stopped short of the gap and started a downward cycle. I was now looking for a point to go long.
The sort of areas I look for on a deeper market cycle are the VWAP, the midpoint or 50% of the move so far and a good support level.

So when I got all three at once I made the most of the massive confluence.

VWAP, 10300 cash and the 50% retracement. Perfect for a long entry.

I drew a small downtrend line and added to the position as the trend line broke upwards and pulledback to the line.

I was fully loaded long with a gap fill as a final target. I scaled out as the market pushed up and waited for my final target. Unfortunately it fell short and I was stopped out on my last batch with a trailing stop.

I was still in long mode so stalked the next long trade. I measured the pullback of the last move, 40pts, and drew my small downtrend line on the new downcycle. As the market appoached a 40pt pullback I got ready for my entry. I had no level to work with this time so waited for the downtrend line to break and use that as my trigger. It did and I got long. I rode the trade up, scaling as I went. The market stalled at the previous high, I gave it a bit of room to breathe but it wasn’t to be so I took my profits.

Measuring pullback distances.

The lesson to take from todays trade is not to force a trade if you are not sure. The market will show you a good trade, wait for it to stand out. If you still don’t see a good trade then leave it. The market will still be there tomorrow.