Tape Read ES (Tuesday Edition) by Greg

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ES 2010-03-09-TOS_CHARTS 

Tuesday's chart of the ES was very interesting.  As you can see by the numerous declining volume spikes, the buying surges were running out of steam.  The obvious question was where would a reversal come if it was going to?  The horizontal green bar was an area I flagged as a potential area where we might see a reversal.  The keltner channel set at 1.619 & 39 acts as a decent trade filter.

What I've noticed for short or long reversals late in the day, is that price will break through, and then back test the channel before making it's move.  When you see a break and a back test, it always bears evaluating for a potential reversal play.  The risk-reward is pretty good because you don't need a huge stop because either the channel edge will hold on backtest or it doesn't.  If it does, then late in the day odds are in favor of this particular setup.

In the above example the upward momentum fades causing price to near the channel, then the hanging man doji's add credence to the shooting star doji.  The volume bled off as the channel edge was back tested, and the clincher was the red candle which gaped down from the channel.

Lastly, in this kind of situation I've found the SMA (close)(3) Green line, and SMA (H+L+C/3)(5) Red line, work well to keep you in position on the trade.  When those two cross, it's time to cash out and call it a day.  The volume spikes just prior to the cross are the big clue the selling is about to end, and the cross nails the close.