Swing Trading the Dow's Intraday Reversal
Karl Montevirgen of Independent - Writing for Multiple Companies - InsideFutures.com - Mon Aug 12, 5:28PM CDT

When the market sells off in a seeming panic mode state, as it did between July 31 to August 5, swing trading the recovery on an intraday basis can be tricky.


Often, you have to look at the intraday price action to get a clear sense as to when a reversal might occur--might being the operative term.


If youre fundamentally bullish, then you might anticipate trading the reversal with an eye toward the peak as a potential target. If youre only somewhat fundamentally bullish, you might think of targeting a lower resistance area. You may even hold multiple positions targeting both or beyond.


Either way, your swing trading sensibilities will likely have you watching the higher lows supporting the breakout, as any violation of these levels might, from a short-term perspective, render a swing breakout scenario somewhat invalid.


Anticipating Potential Support


It helps to anticipate likely support by zooming out to a larger time frame, and judging from the strong reversal on August 6, many of the more technical traders had anticipated this general level based on the previous support levels going back to March of this year.



Support in March [1], May [2], and early in June [3] may have supported the thesis that the low on August 6 as shown at [4] might have been anticipated, but to get a clearer picture, we need to take a look at the intraday price action to see if such a low could have been determined.


Using Basic Trend Rules to Anticipate a Breakout


On August 5, we see a low [A] followed by a higher low at [B]. Although this doesnt say much yet, it at least satisfies part of the basic criteria for a potential reversal. Now we see a breakout at [C]. A higher high? Sort of, but it really depends on whether the subsequent price action continues to form a higher low and higher high. At the time of writing price looks like it might be establishing a lower low, but its still too early. Any breakout point can serve as a potential long entry point. But the big question is whether the price will be able to maintain its momentum, staying above the consecutive swing lows at [A] and [B] while breaking above its current swing highs.


Although markets can be technically traded, fundamental factors ultimately drive the markets. So for now, its a wait and see. But as far as swing trade setups go, particularly with regard to trading a potential correction, the context is quite straightforward and clear.


The risk of loss in the trading of stocks, options, futures, forex, foreign equities, and bonds can be substantial and is not suitable for all investors. Trading on margin or the use of leverage is not suitable for all investors and losses exceeding your initial deposit is possible. Supporting documentation is available upon request. Trading futures, options on futures, and FX involves substantial risk of loss and is not suitable for all investors. Carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources and only risk capital should be used. Opinions, market data, and recommendations are subject to change at any time. The lower the margin used the higher the leverage and therefore increases your risk. Past performance is not necessarily indicative of future results.