WHEN IN DOUBT, EXIT POSITIONS
Failed price swings. In most instances, markets are entangled in trading ranges. Firm trends in both directions alleviate into trading ranges in order to consolidate recent price modifications, cultivate profit taking, and lower volatility levels.
A trading range, while part of a robust trend development, hits a top or a bottom when it goes to the other direction of the previous swing. When a range paves the way to a breakdown or breakout and then reverses, expect a change in the trend. Prices will rebound within range boundaries at this point. Unsuccessful breakdowns or breakouts imply targeting short sellers in a downfall and investors in an ascension.
In the event of a failed breakdown or breakout, here’s what you can do: exit, take the gain or loss, and enter again if the price outmatches the peak of its breakout or the trough of its breakdown. That way trading continues.
High volume days. Monitor the average daily trading volume over 50 to 60 sessions and watch for days that record three times that volume or higher. That is great news if occurring in the position’s direction. Conversely, it serves as a warning cue when the direction goes on the other side.
For uptrends, check on balance volume or other traditional indicator. For downtrends, observe it as distribution. Trail climax days which can halt trends. It reflects at least three to five times average daily volume extending to new peaks in an uptrend and new troughs in a downtrend.
Moving average violations and crossovers. Moving averages pave the way for a quick analysis simply by assimilating relations between the three lines. When the short-term moving average slides through the long-term, a danger is coming. On the other hand, there is a risk on short sales when the short-term surges through the long-term.
A red flag waves in a price action when the intermediate moving average changes course from lower to sideways on short sales and from higher to sideways on long positions. Therefore, do not stay and wait for the moving averages to change its track.
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