The Cycle Trader Indicator has a built-in tool that provides a trader with two critical price levels for each trading day. A break of an important support in the morning quite often becomes a start of a sustained move down that keeps pushing price down until the end of the regular trading session
This is Part 2 of the tutorial explaining how to trade based on the critical daily support and resistance calculated by the Cycle Trader Indicator.
Watch a video tutorial explaining how to trade support and resistance levels calculated and drawn by the Cycle Trader Indicator:
For every trading day the Monkey Cycle Indicator calculates two very important levels, the Daily Support and the Resistance levels. That information is shown in the right upper corner of each chart:
On June 8th, 2022 RTY-mini futures opened the morning trading session over the Daily Resistance (the red line):
There are several important rules explaining how price normally interacts with the Daily Support and Resistance levels. Those rules tremendously simplify the way how a trader finds out what the right direction of the trade should be:
On the chart of RTY-mini shown above you can see that price tagged the daily-resistance-turned-support at 1,919.60 and started to make long wicks under that level without closing any candle under that support.
Let’s look what happened next:
The first morning test of the resistance-turned-support produced a quick strong pop that lasted half an hour. But by 10–15 AM EST bears pushed price back down to that same level.
While bears always try to push price under that resistance-turned-support level, bulls would normally try hard to defend that level because as long as they hold price over that key support for the day, they save the bullish bias for the day. If they manage keep price over the support, they keep alive a setup to trigger a short covering rally driven by forced liquidations of short positions.
That morning Bulls managed to defend the second bears’ attack:
On the chart above you can see that price popped one more time after re-testing that same resistance-turned-support level at 1,119.60 (the red line).
The green arrow points to a cycle support that was drawn by the Cycle Trader indicator when it detected start of new micro up cycle. And that micro rally stopped at noon time when that 5 min up cycle topped. The red arrow points to a cycle resistance that was drawn by the Cycle Trader indicator when it detected completion of an up cycle and start of a new down cycle.
By 12–30 PM EST bears managed to break under that critical support:
Such a breakdown opens the door for a strong decline towards the blue line, the critical support for that day:
That breakdown was followed by a strong decline that almost tagged the blue line, the critical support of the day:
That case was not a typical case of a down trending day that started from breakdown of the critical daily resistance-turned-support. Let me show you a couple of more examples:
On 5 May 2022 bears managed to break the daily resistance-turned-support at 10–20 AM EST and bulls could not produce even a small bounce. What followed was a quick directly down to the blue line, the critical daily support.
On 29 April 2022 ES-mini was trading over the critical daily resistance pre-market but dropped to taht line around 9–10 AM EST:
After a quick small bounce powered by a 5 min up cycle (a very similar to the first case from 8 June 2022 we discussed at the beginning of this article) it dropped back to the red line and effortlessly broke under it.
What normally follows is a sustained move down throughout the whole day towards the blue line, the critical daily support.
Description of that article would be incomplete if we forgot to talk about the best way to trade that breakdown pattern. When price opens over the critical daily resistance and then breaks under, it the best way to trade on that day is to go short on every turn down off a cycle resistance printed on 3 or 5 min timeframe. On the 5 min chart of ES-mini shown above I added red arrows pointing to those turn points.
If we switch to a 3 min timeframe we can see that the Cycle Trader Indicator nailed two great entry points to go short after that breakdown:
Each of those “Short PB” signals nailed a 30-point drop in ES-mini futures.
We offer probably the most powerful suite of proprietary indicators for the TradingView platform. Read more about the Cycle Trader Indicator here.
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