DOW Bearish Rising Wedge Day Trade Set Up To Watch

DOW Bearish Rising Wedge Day Trade Set Up To Watch

Still no new high probability trading set ups to post, so I’m going to talk about a particular characteristic which has historically been common on the DOW and is something I’m keeping an eye on for a possible short entry.

Right…. Since the massive sell off in August, characteristics might have changed and this may not materialise in the way described here, but for DOW this is the typical outcome of the rising wedge we have presented to us right now.

I have many DOW charts showing this precise pattern, but, most were from 2009 – 2010 so to reiterate, it’s possible this outcome will be different.

Price is currently trading in a rising wedge. During the most bullish phases of 2009 it was common for these wedges to simply break to the upside, with price eventually returning to re-test the upper wedge line where support would be found and the rally would continue.

However, during the latter stages of 2009 and for the less bullish portions of 2010, price would get rejected from the upper wedge line, fall back to the lower trend line, test it, and quite often break below it. This is where shorts would start entering the market. Price would then recover and fight to gain traction back above the trend line, then we rally to the upper wedge line, price resists, then on the following attempt we get a throw over followed by a sharp sell off that takes both wedge lines out in one go.

Hope all that made sense – it’s tough to absorb without a chart, so hopefully this picture of our current situation with the potential final outcome will make things clearer:

And here is a historic example of exactly the same set up and final outcome:

 

Although we cannot assume anything from these charts, by being aware of the possibility, we can wait for a price “throw-over” beyond the upper wedge line, and from here using intraday analysis we can look for  a good short entry where tight stops can be used. From then on it will be a case of guaging the situation as it occurs, and once we see an hourly close below the upper trend line stops can go to breakeven whilst we look for confirmation of follow through and a decent sized pull back.

I’m not necessarily talking about major trend changes here, but even in an upwards trending market this set up will normally yield 150 points or more which makes for a nice day trade. Of course, the option will be there to trail stop losses if the main hourly trend does look like turning back down.

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