SDD timeline

Discussion in 'Strategy Development' started by Pekelo, Nov 12, 2008.

  1. Pekelo


    This thread is a repeat what I already said in the "ADU timeline" thread, but since lately we are having quite a lot of them, let's go over it again. Here is the original ADU pattern thread:

    SDD is a certain chart pattern of weak markets, when the market sells off. It stands for Step Down Day, because the chart remembers me a step: first a drop, then sideways, then further drop. I like to use descriptive names.

    SDD is pretty much the mirror of ADU (All Day Upper). Please note that not every selloff day is an SDD!!!! Here is how the SDD timeline goes:

    1. Market drops a decent 150+ Dow points in the first 60-90 minutes.
    2. After that it goes sideways for about 3 hours.
    3. Further decent drop that usually starts around 2 pm.

    The most profitable play (just like with ADU) is the lazy method, try to get short as soon as you can, and just let the market kill itself. One of the best short entries is around 11:30 or so when the Williams hits zero. If you can catch that, just stay short for the whole day, or at least until 3:30.

    Quite often the SDD ends at the LOD, but that is not always the case. Decent profits can be taken around 3:30 pm. If the LOD is at the close, as an afterplay you can go long overnight, there is almost always a decent upgap in this case.

    If we have back to back SDDs, the 2nd one rarely ends in a low, instead it usually rallies into the close.

    Here is a classic example of SDD Oct 9th. October had 6 SDDs, and I estimate there are about 20+ or so a year.

    If one wants to play the sideways part of the SDD, you can use Bollinger Bands and the Williams indicator to time the entries/exits...

    <img src=>
  2. Pekelo


    Here is a version where the SDD ends in a rally, usually the 2nd day of back to back SDDs...

    In the previous post I forgot to mention that to catch the 2nd leg down you can put a stop sell order just below the LOD and that will put you in the position.

    The general rule is: If we have a new LOD after 2 pm, just get short and stay short until at least 3:30 pm...

    Today (11/12) there was a new LOD before 2 pm already, but the newer LOD after 2 pm was 861. As I am writing this at 3:28 we are at 852....

    <img src=>
  3. Pekelo


    Here is today's chart, without the BB so it is easier to see how it advanced:


    The selloff started at 1 pm, a bit early and it closed pretty much at the LOD...
  4. Pekelo


    Here is yesterday's SDD with the overnight and next day play, showing it on the NDX chart:


    The second step came 30 minutes early. Getting short in the sideways phase I use the W %R hitting zero. As mentioned earlier in this thread, the short can be covered at 3:30 pm and that was the LOD. You can see the overnight upgap and that after the open it still went higher into 10 am from where it promptly dropped into 10:30, where it got a bounce. This was mentioned in the ADU thread, I guess I should have mentioned it here too:

    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.

    ES dropped 13 pts from 9:50 to 10:30 today
  5. pma


    Pekelo-thanks for the contribution!:)
  6. Pekelo


    My pleasure. Here is the last 3 days an interesting ADU-SDD-ADU combo. Today turned out to be another ADU and almost identical to Wendesday's chart. As mentioned in my previous post, the after SDD play only guarantees the fall into 10:30 but after it can go either way, as today showed because that was the LOD, and we rallied from there:


    I will have more explanation of this 3 days in the "ADU timeline" thread...