Day Trading: Making an Easy Money by Tracking Only One Cycle

Read how the CAT Cycle Indicator turned a strong 140-point decline in ES-mini into an easy-to-trade winning Strong Short setup

The first trading idea I posted for members of my trading and educational chat room at 8–40 AM EST on Friday, May 20th, 2022 was a short setup in ES-mini and NQ-mini:

30 min chart of ES-mini, 20 May 2022

Look at how ES interacted with that dark red horizontal line. The CAT Cycle Indicator detected signs of an up cycle topping around midnight on 19 May 2022. That line was printed at 12–30 PM and never changed since then. You can see that ES first tested the resistance of that red line at 3–00 PM on Thursday and that test was followed by a strong bearish reaction. After bears failed at that resistance, ES-mini dropped by 50 points in a matter of 60 minutes by 4–00 PM on Thursday. The algo provided us with that resistance more than two hours an advance!

Then by Friday morning bulls pushed ES back up to the same resistance. ES was hovering around that same 3,940 level from 4–30 AM to 9–00 AM EST.

I have added the blue trend line connecting several previous lows and that immediately made the short setup jump on you. At 8–40 AM EST I posted:

“ES looks fragile here”.

I really like setups that manifest themselves on several charts of different correlated instruments. And that was the case this time. Look at the almost identical pattern in NQ-mini futures:

30 min chart of NQ-mini futures, 20 May 2022

That chart of NQ-mini made even stronger bearish case because despite numerous attempts to break over the cyclical resistance bulls failed to close any single 30 min candle over the resistance of the dark red horizontal line.

Note that the CAT Cycle Indicator detected topping signs and printed that resistance at 12–30 PM on Thursday on 19 May 2022. Bulls tested it three times eight hours later, at 4–30 AM EST, at 5–00 AM EST and at 7–30 AM EST.

One small detail, a manually drawn trend line would make this chart looks like an attractive short setup for millions of traders that practice traditional technical analysis:

30 min chart of NQ-mini futures, 20 May 2022

At 8–42 AM EST I posted that chart in the live chat room with the following comment:

“Bears will most likely break under support of that blue line”

That setup looked so attractive that I shared it with my followers on Twitter.

An hour later we got a clean breakdown under that blue trendline:

30 min chart of NQ-mini futures, posted at 9–35 AM on 20 May 2022

ES-mini broke under support as well:

30 min chart of ES-mini futures, posted at 9–35 AM on 20 May 2022

One more hour later ES-mini kept leaking lower:

30 min chart of ES-mini futures, posted at 10–37 AM on 20 May 2022

… so did NQ-mini:

30 min chart of NQ-mini futures, posted at 10–37 AM on 20 May 2022

Before we discuss an exit strategy let’s discuss what made that decline so strong.

Not all the time we get such a strong turn down where a new down cycle pushed price down without letting bulls to produce even a micro pullback. What was the reason for that strength? Could we expect such a strong drop in advance?

What made that short setup so attractive was the fact that ES and NQ not only hit a resistance on 30 min timeframe but also on 60 min timeframe. When two cycles to simultaneously and new down cycle start the power of down pressure multiples.

60 min chart of NQ-mini futures, posted at 10–37 AM on 20 May 2022

Not only ES and NQ hit resistance on 30 min and 60 min time frame, but we got the Strong Short setup on 60 min:

60 min chart of NQ-mini futures, posted at 10–37 AM on 20 May 2022

You can read explanation how the Strong Short signal works here.

Bears used combined power of down cycles on 30 min and 60 min time frames to pushing ES and NQ down. By 12–30 PM ES dopped by

those two 60 min and 30 min down cycles by more than 140 points since the open of the regular trading session:

30 min chart of ES-mini futures, posted at 1–00 PM on 20 May 2022

At this point the main question for day traders was when this sharp drop could stop. At 10–37 AM I explained to members of the trading chat room:

“Because the resistance on 30 min stopped the rally, once we get a new support on 30 min timeframe we can get a strong pullback driven by a new up cycle”.

There was one more important consideration for bulls.

240 min chart of ES-mini futures, posted at 1–00 PM on 20 May 2022

The CAT cycle indicator identified a bottoming cycle on a high level 240 min timeframe at 10–00 AM on Thursday, 19 May 2022.

ES-mini hit and even slightly overshot that support 25 hours later around 1–00 PM on Friday. This is what I explained to members of the chat room at 12–40 PM on Friday:

… “ES dropped to test that fresh support on 240 min. If we get a bottoming signal “Cover Short” on 30 min at this level that would be a good bottoming signal. If that happens, we will have two cycles, 30 min and 240 min pointing up. Meanwhile we need that 240 min candle to close above 3,836, the cyclical support on 240 min time frame. Its ok when we get down wicks overshooting a cyclical support. But when we get candles closing under a support that undermines power of that up cycle”.

And this is how that decline stopped and a strong pullback started:

30 min chart of ES-mini futures, posted at 4–30 PM on 20 May 2022

As I predicted, once a new 30 min support (the green horizontal line) got printed a very strong pullback started. That same turn happened in NQ-mini futures:

30 min chart of NQ-mini futures, posted at 4–30 PM on 20 May 2022

And here again you should ask why the pullback was that strong. That move up quickly erased 61.8% of the preceding strong decline. And the explanation is the same. The reason why that move up was so strong is because not only down cycle bottomed on 30 min chart but also on 60 min timeframe:

60 min chart of ES-mini futures, posted at 4–30 PM on 20 May 2022

Not only the CAT Cycle Indicator identified completion of a down cycle on 60 min time frame, it identified the bottoming setup “Cover Short” setup.

60 min chart of NQ-mini futures, posted at 4–30 PM on 20 May 2022

You can read explanation how the Strong Short signal works here.

On the four charts shown above you can see the CAT Exhaustion Point indicator that printed bullish signals “Strong Bear Climax” and “Climax”.

Every time we get a bottoming “Cover Short” signal generated by CAT Cycle Indicator together with “Climax Selling” or “Strong Bear Climax” signal generated by CAT Exhaustion Points indicator, you can consider it as a very attractive long setup for a bullish bounce.

“Clmx” means the final climatic move driven by unexperienced small retail traders.

This is type of signal you will not find in other indicators. All other indicators track divergences between price and some oscillator. But quite often you will see that the final push down breaks positive divergences making retail traders exit long positions taken on an ordinary positive divergence setup.

The idea behind the Bear Climax signal is that small traders are the ones who are forced to dump longs at loss at the bottom or/and go short at the bottom. They tend to go short too late when the market starts to slow down after a big decline. When pro traders and institutional traders see that selling pressure evaporates and no sellers are left they turn the market up by starting covering shorts. And that unexpected turn up in contrast to expected decline is when retail traders start chasing the price.

The Exhaustion Point indicator for TradingView works on any timeframe and on any instrument including futures, stocks and crypto currencies. That is part of a powerful toolbox that provides you with an edge over millions of other traders.

Watch the indicator at work at YouTube!

Read more about the Cycle Trader Indicator here.

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Important Disclaimer

Neither the author nor the publisher of this article is registered as an investment adviser nor a broker/dealer with either the U. S. Securities & Exchange Commission or any state securities regulatory authority. Readers of this article are advised that all information presented here is solely for informational purposes, is not intended to be used as a personalized investment recommendation, and is not attuned to any specific portfolio or to any user’s particular investment needs or objectives.

Trading stocks, options, or futures carries a high level of risk, and may not be suitable for all investors. Before deciding to trade, you should carefully consider your objectives, financial situation, needs and level of experience. The author provides general overview of trading methods that does not take into account your objectives, financial situation or needs. The content of this article must not be construed as personal advice.

Past results are not indicative of future profits.



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