Distinguishing between retracements & reversals

Discussion in 'Index Futures' started by arzoo, Nov 24, 2003.

  1. arzoo


    Hi guys,

    i was wondering what chart tools (bars, candles, patterns, trendlines, etc) and/or indicators (or even strategies) provide reliable signals in distinguishing between:

    1. when the nq/es is in a trend - retracements vs reversals


    2. when the es/nq is in a base (possibly beginning a trend) - a pullback from breakout vs a failure of the breakout/base pattern.

  2. bobcathy1

    bobcathy1 Guest

    I would use a divergence to spot a trend reversal.
    Stochastics and MACD histograms work well for this as well as other oscillators.
    You can use this on any time or tick chart.
  3. dbphoenix


    Are you talking about inter- or intraday?
  4. bobcathy1

    bobcathy1 Guest

    It pretty much works for all time frames.
    But I use it on a 185 tick chart or 15 minute.
    Look at the black lines for the example.

    After this particular divergence the market rose over 30 points.

  5. dbphoenix


    Sorry, Cathy, I was asking arzoo. We posted at the same time, but yours was printed before mine.
  6. bobcathy1

    bobcathy1 Guest

    No problem:D
  7. That's easy. Assume everything is only a retracement of the prior move.
    Then if the move continues (this is REALLY where tech analysis is most useful because you can use all kinds of indicators to begin questioning your trade) and your account takes a beating, well, then its a reversal.


  8. arzoo


    Sorry i wasnt clear, i was looking for intraday signals.
  9. dbphoenix


    Intraday, you pretty much have to use some sort of oscillator to detect divergence, like Cathy suggested, unless you're good at using volume for the same purpose. If that divergence shows, depending on where it shows, then you're most likely looking at a reversal. In a good retracement, there probably won't be time for a clear divergence to appear.

    There's also the issue of S/R. Reversals are far more likely to occur when S/R is tested during the main thrust of the trade. But if price turns for no special reason and tests S/R in the counter-thrust, you're more likely to be looking at a ret.

    As for the base business, a lot depends on the length and breadth of the base. The most reliable BOs take place from bases that are at least two hours long, and the tighter, the better (like today). When they take off, though, THEY TAKE OFF. Know exactly what you're going to do to take advantage of these BOs or you can either get screwed or miss out on the move entirely.

    I suggest, tho, that you use a very tight stop. When these BOs don't work, they really don't work, regardless of whether you use a tight stop or not, so there's no point in wasting money. When they do work, the stop is not an issue since it's rarely touched, much less violated. Taking a trade such as today's, then, becomes extremely low risk.

    Go back over the last couple of months and look for bases. See which ones work and which don't and why. Then print them out and have them handy so you can remind yourself of what to look for when the next occasion presents itself.
  10. "inter- or intraday?"
    I'm sorry for butting in with this, but I'm not sure I know the meaning of the two phrases.
    Is this correct..
    interday means longer than one day.
    intraday means up to one day. :confused:

    #10     Nov 24, 2003