Weekly Market Overview August 16, 2021

Today we find our favorite NASDAQ 100 ($NQ) banging around all time highs, after running hot since the bottom in May. Consolidating at the top of a range after a big run isn't always the bullish sign that it would seem, it requires a bit more context. As always we look to market regimes and price action for context. 

But before we get into that let me go over the trading day in the Trading Lab today, trust me, you'll appreciate the information as it will give clear guidance of the bigger picture for $NQ and where we go from here. 

First of all, we start every trading day identifying the market regime via the SQN indicator on a daily time frame. 

As we can see the SQN indicator is trading in the Bull Volatile market regime, however a quick confirmation up higher shows that price action is acting as if it's in a Bull Quiet regime. Price action always rules and so we enter today with a Bull Quiet. 

Last week was a bit painful for traders who just buy dips, without any level of risk management, taking a dip from Tuesdays highs to Thursdays lows, and back up to close the week generally flat. But since bulls closed the week strong, this further validates the Bull Quiet market regime. 

Which brings us to today, Monday, where the market opened and shot straight down for an hour of selling. From an initial opening run to 15112.25, and dropped straight down to 14917.25, nearly 200 points down out of the gate. 

Now we start looking at the edges we have to figure out how to get access to profits. 

Using Market Regimes we can organize our point of reference into different regimes and identify characteristics. Establishing a Bull Quiet or Blended Bull regime gives a lot of statistical advantages. 

In Blended Bull the $NQ closes positive ~67% of the time. 

This means 2/3rds of trading days on $NQ that go negative (below yesterday's close) will close at least +.01% or better on the day. 

Simply buying because the price is negative isn't how you exploit that edge, a major contributor to your edge is risk management.

Using price action to establish a low risk turning point is ideal, typically I use a failed breakout retest to counter the trend. In today's case a strong opening trend down sucked in all sorts of bears and scared bulls. A lot of amateur traders will look to add to their short trades on a counter trend bounce, except they don't realize they were just sucked in to a trap. 

When these traders are looking to add to their shorts, their risk tolerance becomes lower, they are scared, and when they start seeing profits deteriorating quickly, or becoming losses, they have to buy to cover to exit their positions. 

This gives us our first tactical entry, buying as the breakout fails by reversing, taking another little dip to retest it and then face rip the bears. 

You can see the Fail 1 and first entry on this chart here. 

Also notice how big that next candle is after it moves higher, it's perhaps the biggest bull candle of the day. That's because all the bears had to cover their position quickly, they were scared. 

You also see "Fail" written on that chart a couple of times, this is how we keep ourselves from getting in to trouble. Each time I wrote "Fail" on the chart it was a place that was being tested by bearish price action.

"The best looking sell setups, fail!"

Each time the best looking sell setups fail, is a fantastic location to add to your position, increasing your risk exposure and risk keeps being removed through these tests. 

By the time I added to my position I was already well within profits and adding any more would've stretched my risk, so I only made two purchases today. 

Once this trend was established we were loaded up nicely and were heading to our +.01% price level on the day, completing our 67% opportunity at 15,122. 

First entry was 14,954.25

Second entry was 15,007,75

Average price 14,981

Eventually exiting at 15,130.50 for 149.50 $NQ points per contract or $3,737.50 per contract.

You don't need to come up with $150,000 to day trade the $NQ like this, this is what prop trading is all about. Using a company like Top Step Trader you can pay a couple hundred dollars to them and they give you $150k of their money to trade, splitting the profits with you. 

Whether you are day trading, swing trading or looking to run a long term strategy, working with a team of fellow traders who aren't stuck on reading Tweets about the fed all day and glued to CNBC will help you get to the next level. 

Join Us

And that brings us to the big daddy, the daily $NQ long signal that fired off AGAIN today. 

I'm adding to my $NQ long position with a BUY STOP above 15,139.

This is the 7th purchase of $NQ in this long campaign. 

We remain some distance away from a top and this past month has given us an excellent opportunity for $NQ to be tested, and to fail to break down. 

The measured move higher is 15,750 area which would put us above that R3 pivot on the monthly, and the only other requirement is a parabolic break above trend. 

And finally, our end of month $DIA strategy put in another stellar winner this month, exiting last week for a +6 point move. We will likely be releasing this strategy as a stand alone strategy later this month (before the end of month) for those of you who've been asking for it!

Hit me up with any questions you may have!