A long setup that worked on Wednesday but failed on Thursday
Let’s find out when the setup failed
We started a trading day on Wednesday, February 2, 2022 with a bullish bias.
ES-mini futures broke out strongly over cyclical resistance levels on 30 min timeframe and held well over the broken resistance-turned-support.
After price breaks a cyclical resistance the market switches from a cyclical mode into a trending mode. Regardless of a strength of that trending move bulls will get exhausted at some point and price will turn down staring a corrective pullback. If a pullback finds support over the broken resistance and the Monkey Cycle Trader Indicator detects a new cyclical support, we get a high probability long setup “Strong Buy”.
ES mini kept leaking lower until 10–30 AM until the indicator detected a new cyclical support and printed the “Strong Buy” signal:
When we get the “Strong Buy” signal it always makes sense to look for a confirmation that the decline has signs of bottoming. In order to find that kind of confirmation we always switch to 3 min and 5 min charts. What we need to find is a completed bottoming sequence followed by “Exit Short” signal.
It took the market another hour to provide us with that confirmation:
At 11–17 AM the indicator printed “Exit Short” and “Cover Short” signals on 3 min charts of ES and NQ. That long setup played out really good:
Bears tried to break under the new green cyclical support (4,533.40) for another hour. But they failed and every bears’ attack was bought out by bulls. Just look at the dense cluster of down wicks. That is a solid sign of accumulation made by institutional buyers.
Let’s open a 5 min chart to see a structure of that rally off the double support printed on 3 min and 60 min charts:
We can clearly see a bottoming “double bottom” pattern drawn by two failed bears’ attempts to break under support. The critical moment for bulls was to push ES over the trendline. This is when candles turned green again.
In any trade we need to know when to exit. We entered that long trade based on the “Strong Buy” signal printed on 30 min chart. To exit that long you can wait until a new cyclical resistance is printed on 30 min chart and the indicator prints “Exit Long” signal. Another alternative is to sell your position or part of your position when the Cycle Trader indicator detects a new cyclical resistance on a lower timeframe.
The indicator printed a new cyclical resistance at 12–15 PM but price hits that resistance 4,567.75 at 12–45 PM. That was a decent trade for 20-point gain in ES-mini.
Now let’s review a similar setup that manifested itself on the following day, Thursday, February 3, 2022.
The indicator detected a new cyclical support at 10–00 PM on 2 Feb 2022. But price first tested that support at 8–00 AM on 3 Feb 2022.
We got a confirmation of a bottoming pattern at a micro 5 min timeframe:
The Monkey Cycle Trader Indicator detected a micro cyclical support at 9–30 AM. The first troubling sign came right after the open of the morning session:
Bulls tried to reclaim the broken support but failed leaving behind a long up wick, a very bearish sign of bulls’ rejection.
However, by 10–00 AM bulls managed to hold over the micro support 4,505 on 5 min timeframe:
The critical moment of that trading session came at 10–30 AM:
It seemed like bulls finally took over and pushed ES strongly out of the 5 min support and back over the cyclical support on 60 min chart.
By 10–38 AM ES went up to test the resistance printed by the previous up cycle:
And here we started to see long up wicks, signs of distribution or institutional selling right at resistance.
By 11–00 AM bears managed to push ES back under the cyclical support on 60 min timeframe. This when bulls lost in that battle. What really interesting is that two long up wicks at resistance of a down trending 21 EMA came as a solid sign of bears’ rejection.
Remember, in the first case we discussed above we had an opposite picture when ES printed three down wicks and then started a rally!
This is the main take away from this case study:
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