ADU timeline

Discussion in 'Strategy Development' started by Pekelo, Sep 26, 2007.

  1. Pekelo


    In this thread I will explain the ADU timeline and how to take advantage of it, so if I mention it again in the chatroom I can just point to this thread instead of explaining it over and over.

    ADU stands for All Day Upper and means a particular pattern how a rally day advances. This is just a name I have been using for years, please don't hang up on it, I could call it "Up Day" or "Fricklestap", or whatever. It is easier to refer to something by a special name.

    I will discuss first the classic ADU then the variations of it, such is delayed, weak, failed (which is not really an ADU, but still follows the same timeline).

    I use the Dow cash (DJX) for determining and timing the ADU. I estimate that there are about 20-30 ADUs per year. You didn't think that there are really 250 different chartpatterns, did you? :)

    The best way is if you are already long from the previous day. In that case you don't have to do much, except cashing out close to the end of the day. Unless you want to make some extra points compared to the day's range.

    Timeline (or schedule) of the ADU:

    1. Dow breaks above 50 in the first 10 mins. If we are up 70-80 points by 9:45, we have a good chance the day being an ADU. Usually there is a top around 9:45 and another around 10. This is the best time to get short.

    2. Dow is pulling back 20-30 pts into 11 am. It doesn't have to be exactly 11 am, +/- 10 mins. 2nd best time to get long for the day after closing the shorts from 10 am.
    To catch the bottom of the pullback the best is to use W %R. The Dow usually doesn't drop below 50+....

    3. Hold longs until the midday top between 12-12:30. To time the turns I use BBs...In the classic version, the Dow should be up 100-130 pts. Switch to short.

    4. Pullback of 30-40 pts, bottoming between 1-2 pm. Again, timing it with BB ...Get long until almost to the close...

    5. HOD is usually between 3:30-45, with a little pullback at the end. It could run up into the close, though. Dow is up 120-150 or whatever, depends on how strong the rally was.

    The follow up day is usually sideways consolidation, but that is another lesson. Last year there were 3 occasions when we had back to back ADUs, but that is rare. Bet on sideways...


    Weak ADU: Everything is the same but pointwise, the Dow doesn't go that high. Today was a good example. The midday top occured at 88+ instead of 120...

    Delayed ADU: The pattern still follows the timeline, but with a 30-45 mins delay. Once the delay recognized, just adjust the timing accordingly.

    Failed ADU: This is the one that doesn't end well for being long all day. The first part of the day advances as a classic ADU, but around 2 pm the Dow starts to melting down and drops. Early signs can be for this: lack of volume, upgap left behind,(specially if it is a 2nd gap), weakness in points.

    That's about it. I will post charts later for each pattern...
  2. Pekelo


    Today was a "classic" weak ADU, if there is such a thing. By classic I mean it was a perfect example for a weak ADU.

    We had the first top at 9:45 and the 2nd top at exactly 10 am. On the Dow chart the drop into 11 can not be seen because it was basicly consolidating. The SPX chart is better, that's why I keep checking all 3 indeces.
    The morning pullback bottom came at 10:45, a but early, but the W %R caught it on SPX.

    As a good ADU, the Dow didn't really drop below 50+. From that 10:45 low we rallied up, but since it was a weak ADU, we topped at +87 compared to a decent 120 or so for a classic ADU. Instead of a nice top we got a long consolidation with a little H&S pattern. The top was sligthly early at 11:45.

    From there we dropped and I think we overreacted by 30-40 pts, and the midday low came as scheduled at 1:55. I think counterbalancing the too much drop the market jumped up (spring effect) and reached the HOD at 3:31, just like a good ADU would. Dow was at +131 I think.

    We dropped lower from there quite considerably, and now hoovering around +100...

    Here is the SPX chart:
  3. toucan


    Nice job pekelo...


  4. Pekelo


    Here is a chart of a Classic ADU. The timeline is followed perfectly:
  5. Pekelo


    Here is an example of a delayed ADU. It usually happens when there is an economic news at 10 and that throws the 10 am top higher thus delaying the timeline.

    Here the morning top came 40 mins late. Then the bottoming after that came at 12:05 a full hour late. The midday top is at 12:45 so the delay started to get shorter and the midday bottom is right on time at 1:20.

    Then it rallies for the rest of the day, topping at 3:30...
  6. Pekelo


    Example of a failed ADU. Technically speaking this is not an All Day Upper, because it melts down by the end of the day, around 2 pm, but for the first half it still follows the timeline, so I call it failed ADU.

    Top is at 10, morning bottom at 10:50, we have 2 midday tops at 12:30 and 1:10, then it starts to go down, bounces once at 1:50, but the bounce ends in further selloff after 2:20....
  7. Pekelo


    There is actually an opposite of ADU, that I call SDD. SDD stands for Step Down Day, and it is the pattern how a certain type of selloff day advances. The name comes because the chart looks like a step, a big drop first, consolidation next and another big drop into the close.

    SDD is pretty much the mirror image of an ADU. The timeline goes like this:

    1. Dow drops a decent -100 or more by 11 am. (Lately there tend to be a midday bottom around 11:40)

    2. For the next 3 hours there is a sideway consolidation, when the Dow is bouncing between the BBs.

    3. Further drop after 2 pm.

    Timing it I use the already mentioned BBs and W %R. If you have new lows after 2 pm, just stay short until at least 3:30...

    In this Aug 28th example the market went lower after 11, but the sideways is obvious, since at 2 pm it is exactly where it was at 10:50. Then right on cue, it goes down...
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  8. Very interesting. How many daily pattern do you recognize? /we know that less than 250/
  9. Pekelo


    Not that many as daily goes. I use other patterns as ascending/descending triangles and such, but they are just shorter term intraday plays.

    As I mentioned earlier, the next day play after an ADU is a sideway consolidation. That would be the 3rd daily pattern, when the market just bounces between BBs and Dow is between -50 and +50... (used to be -30 and +30 but volatility increased)

    The next day play after an SDD is to go long right at the close. There is almost always an overnight upgap that goes higher after the open and reverses at 10 am, falling into 10:30. After that it can go either way.

    One more rule with a classic ADU: Next day we usually reach the previous day's high. Since yesterday the close was 30 pts lower than the HOD at +131, it was a safe bet to go long and catch that 30 pts, which we already did overnight.

    If I have to put numbers on it, I would say the 250 trading days consist of 10% ADUs, 5% SDDs, and 20+% sideways.

    A very good bet to have a sideways day is the Mondays before FOMC, or Thursdays before a big economy number on Friday....
  10. jmonday


    Do they have to follow all the rules you mentioned?

    Seems like the % of it actually occurring and staying ADU and not being a weak or false one are too low to make a trade on it....
    #10     Sep 25, 2008