RIMM set up a bear trap reversal this afternoon after taking out its ORL. After an almost 2 pt. swoon, price reversed on high volume, returned to the morning pivot low and broke out. The 5 minute chart below is how I traded it. It might be better to wait for the retest on the entry, but I was a little too anxious. If price stalls in the PP zones marked by the blue lines, start to partial out. I took a partial as price approached the morning swing high and folded when my target was met. Notice how the middle PP holds as support after price tags the green line and consolidates.
These bear traps or head fakes usually occur after an extended slide at technically oversold levels.
RIMM set up a bear trap reversal this afternoon after taking out its ORL. After an almost 2 pt. swoon, price reversed on high volume, returned to the morning pivot low and broke out. The 5 minute chart below is how I traded it. It might be better to wait for the retest on the entry, but I was a little too anxious. If price stalls in the PP zones marked by the blue lines, start to partial out. I took a partial as price approached the morning swing high and folded when my target was met. Notice how the middle PP holds as support after price tags the green line and consolidates.
These bear traps or head fakes usually occur after an extended slide at technically oversold levels.
11 comments:
Hi Jamie,
Do you use the 50sma on 1min chart for this reversal?
How would you have traded it if you use the retest on entry? Break of 2.40pmET 5 min bar high?
For highly volatile stocks like RIMM, is it better to use 5min chart?
Thanks,
YR
YR,
50 sma on 1 minute chart is a good trigger. Entering long after the retest is easier to see on the 1 minute as well. Price pivots into the 200 sma, reverses and comes back in for a retest. Once price lifts off the base, enter long, around $93.50.
I find it easier to spot setups on the 15 min. time frame. Then I like to drill down to the lower time frame to confirm the setup and finesse the entry.
I guess I am one of "those traders" that could have been caught in the bear trap. I was following RIMM today but I managed to stay out of it :-)
Ok. Do you usually use 1 min or 5min to time entry for such retest. If there is no base, would you use break of prior bar high as entry?
Thanks
YR
Jaime,
Great idea with 50 ema on 1" chart. Also 13 ema on 5". Thanks,
BL
Anarco,
Getting caught in a bear trap is part of the trader learning curve. Happened to me more than I'd like to admit, before I got smart.
YR,
Yes, use lower timeframes to plan an entry on the retest. If no base, it is much harder to plan an entry. Wait for the first pullback or consolidation again using lower timeframe.
BL,
Different MAs work better on different timeframes.
Thanks Jamie. I guess what I wanted to ask was under what circumstances would warrant a drill down to 1min for entry vs 5min?
YR
YR,
That's a tough one. I use the 1 min. mainly for quick scalps, other wise you have to switch back to the slower timeframe to manage the trade. It's too easy to take quick profits when managing on the faster timeframe.
a little late chiming in here, but "X" used to bank a buck as a partial. so the RIMM bear trap would have been profitable assuming a $1 partial taken & stop to near BE?
signed,
Hidsight is 20/20 :)
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