Trend Reversal on E-mini S&P. What did I miss on this trade?

Bhupinderjhajj · February 21, 2021, 11:23pm

Hello Everyone,

I wanted to get some feedback on a trend reversal. At 8:45am Friday on the Emini there was a reversal from a bullish to a bearish trend as seen below. I never try to step in-front of a trend (timing the top or bottom) and try to trade with the trend. So at 8:45am I figured the market would continue to go long as it was making higher highs and lower lows (highlighted), but instead it did a reversal.

On the foot print chart as seen below, I did notice some significant differences when it went below the 9sma and failed to cross back above. There was no imbalance on the buy side as there was before on previous pullbacks and there was imbalance on the sell side this time as highligted.

My question is, was this all that I missed EX: Imbalance on the footprint chart? Or is there something more that you would have factored into your trading decision before taking a position on at 8:45.

Thank-you

Bhupinder Jhajj

JDFtrader · February 22, 2021, 8:56pm

I am going to assume that you based your entry of the information that is presented and not a specific “signal”. If it was a signal and you entered before or after the signal, that would be the mistake or error.

Since I don’t know exactly how you are interpreting this information , I am not “qualified” or comfortable attempting to critique your entry. But you are. I would suggest you use this loss as a data-point and move on to the next trade. Grow this data set of wins and losses so you can better understand your strengths and weaknesses in your decision making .

The fact is we can’t win them all, and we can’t fix the losers to change that fact.
We can only strive to make better decisions for ourselves.

I hope this is helpful.

Trader · February 23, 2021, 12:26am

What is the chart periodicity that you’re using and are you referring to 8:45 Eastern time? It would be helpful to see a bit more context and I’d prefer to annotate directly onto a chart but hopefully I’m able to be clear enough. Based on what can be seen on this chart though, here are some of the things that I’d take into consideration:

On the way up, the market is stair stepping, which means that as it trades above each breakout point, it needs to pullback to or below that breakout point before finding buyers again. This means that buyers aren’t that interested in buying high. In auction market theory, the market is viewed as a two-way auction and the price is viewed as an advertising mechanism. If higher prices are shutting off buying, then that can be a clue that the auction to the upside may be coming to an end and the market may have to move lower to find buyers and facilitate trade.
Markets often try to reverse after three pushes in a direction, particularly in weak moves. In strong trends these wedges can lead to continued directional movement. Often times, the market will test the start of the channel after a wedge top (or wedge bottom if this was appearing in reverse). A potential reason for why that happens is because it allows limit order bears who scaled in as the market went up to make a profit as the market comes back down. So it’s possible that bulls and bears who understand what’s happening trade it as such (bulls take profits high so they’re selling, bears initiate shorts high so they’re selling, and there’s a general lack of buy side liquidity on the way down since they’ll potentially be able to buy at more advantageous prices soon, anticipating a test to the start of the channel). Additionally, bulls who bought before the three consecutive bear bars near the top may be sufficiently disappointed by that follow through so they’ll sell out at break even too if the market gets back up to their entry price. That’s a lot of pent up selling pressure.
The market formed a small double top and then wasn’t able to get back to those highs on the green candle that you circled. This is a lower high (I don’t care about labels all that much, but this also constitutes a head and shoulders top) and is a potential sign of a major trend reversal. Once a major higher low of the bull trend is broken, the premise of an uptrend is no longer valid and so the market is either in a trading range or has potentially transitioned to a bear trend. Looking further to the left can help as well to see if there’s other potential resistance. Notice also how the market did attempt to go up again once the price reached the start of the channel, but there wasn’t enough buying to drive the prices back up. Plus, by that point the bear channel down was quite tight which may have dissuaded potential buyers. The bulls had poor follow through buying at the bottom of that range and then the market fell aggressively as trapped bulls gave up and bears continued to short. (I really should be pointing these things out on a chart because I’m guessing this is quite difficult to follow).
The move on the way up was weak. Many of the bars had tails, small bodies, considerable overlap with other bars. All of these are more commonly seen in a bull leg in a trading range rather than a strong bull trend so buying high is relatively risky. The exception to this is if that sort of price action is seen but the market isn’t stair stepping because then it may be a small pullback bull trend. Those can continue for a long time since it’s constantly trapping traders into taking low probability reversal trades and they have to buy back their shorts and sidelined bulls who are waiting for better signals will continue to have to chase the market up.
The bear bars are relatively strong. Look at the strength of the two bear bars that follow the first leg up in the channel - they easily reverse a large portion of it. Notice how when the market gets to the highs, there are three consecutive bear bars closing near their lows. Those are better looking bars than the bull bars leading up to that point. So then why did the bull bars that came right after them look so strong? Because most successful reversal attempts will retest the extreme of the move after a trend line break before succeeding. That’s relevant because it can mean that the seemingly strong bars only look that way because they’re part of a vacuum test, being drawn up to a level with very little liquidity on the other side to stop it since they are confident that they’ll be able to enter at more advantageous prices higher when the high is retested. If there aren’t many limit order bears standing in the way, then the market can move up quickly. The fact that the strongest bars in a directional move are coming late can actually mean it’s a climactic end to the move rather than renewed strength.

These are a number of the things that I’d take into consideration. There are some other things that I’m seeing but I’m already throwing a lot of jargon at you so I don’t want it to feel too overwhelming.

colosean · February 23, 2021, 3:07am

It’s not an exact level of resistance, but looking at the pre-market from the day before, there certainly is an area of consolidation. This is from a 5 min chart.

Bhupinderjhajj · February 23, 2021, 6:25am

Thank-you! This was very helpful. I should have looked at the previous days range. Had I seen it, I might of made a different choice.

Bhupinderjhajj · February 23, 2021, 6:26am

Thank-you!

This was very helpful, i’ll have to take these lessons one day at a time and make sure I drive them home tomorrow as well.

MarketMayhem · March 3, 2021, 9:26pm

The reason you didnt get your long is because price was in a down trend, you see this area the top purple line we need to break that and then use it as support to go long, that slashed red line I would have wanted to be above that before I went long, now the lower purple line, you could have taken that move once it pulled back a bit. This was a channel that you really should have been playing around in.