First thing, I've graphed out here the days market profile. If you don't know what the market profile is, google is your friend. Suffice to say, its not a gann/fib stuff, its just quantative statistical mapping of the days volume, using a standard deviation to show where the most action occurs. The middle white line represents the value point, the point that most people agreed upon. The day was a bracketed one and started on low volume.
The key is what time frame is looking to buy aggressively, what time frame is looking to sell, what time frame is looking to cover shorts, and what time frame is looking to liquidate existing positions. I won't go into my total strategy for this as it'd be the size of a phone book, but suffice to say, we don't want to be caught with any surprises. The worst is when you hit a good buying bottom for institutions, and very rarely are these ever some sort of trendline. More commonly, its represents to them a good point to buy into, usually because the price has lost upward momentum, but the value zone in the total market overview remains high. This will not show up when drawing trendlines, it'll only show up in your mind when you're trying to play "what would they be thinking?" in your head.
I'll also note, I'm not sure how this applies to the Australian markets. The SPI200 is a mix of overseas movements and aus institutional buying of course. US is the leading market, thus its a little easier to trade. I'm sure if you worked on it enough, you could come up with a very profitable system for the aus markets too, but the catch is, you can't use a US system on the aus markets. I've never tried it, but I doubt it'd work, the characteristics are different, although the principles still apply.
Here's the first graph. As you can see, the market trended away at the end on some strong volume (look at my volume lines being broken). It bounced off my value line and went full steam ahead. What time frame did the buying? I suspect the intermediates saw an opportunity to come in and take advantage of a week of sideways movement. Once the force got behind (force = volume) the trade, everyone else piled on, looking to test the next obvious point at 13600. It actually close slightly above. This looks quite bullish in the short term (especially after a slide caused by interest rates; it seems everyones adjusted to that fairly quickly though). But we're not trading short term, we're trading intraday. This would be a bad long for a trader looking to hold for a week or more. Why? Because price has outskipped a weeks worth of value zones. We're banking on this being the start of something big, something most timeframes can get into. I don't see that happening, personally.
Thats not to say it might not happen. In a week, we could see a return to some big bull movements. I can't predict that, but its very much a possibility. Each day will give us hints to that movement. So far, I think a trend day (or week) probably isn't going to happen. If you're looking for a swing trade, I'd wait, later next week could hold some good value trades. Its all about seeing it, processing it, looking for confirmation, then trading. If I told you to 'buy in a week, the market will be good!', I'm giving you terrible advice, because depending on how the movement happens will tell me what everyone is thinking. The more pieces, the better the puzzle looks. So far, I've only got some of the frame in the short term.
Intraday, however, is a different story. Price has gotten away from the previous weeks value zone. I'm not totally convinced by this end of day movement. The chartist TA guys will be saying "oh look, its broken 13600, BUY BUY BUY RIDE THE TREND". Poor trading. I have no doubt an upside trend could happen, but I'll need more evidence. I'll need some confirmation that people are happy with a 13600 price, their happy to have a majority of volume at that level, then I'd use that as the base for another trend run. Thats a much higher probability trade then just looking for breaks in basic trend lines. Wheres the force going to come from is way more important then some price mark. Price marks only represent a symbol. Volume represents who gives a ****.
Here's what I'm thinking: See how the market opens. An ideal trade for me would be if the market moves up quickly in the first 15 (maybe even gaps slightly) on light volume, gets uncertain, and starts to go sideways. Perfect short opportunity. I'd look at the TICK, see where the money is going, time my entry using that and a combination of the ER2 + bonds market, short when I start to see some force (volume), then let the market do its thing. Once it returns to that 13550 mark, then I start thinking about covering, depending on the force. If the force isn't convincing, there's probably a lot of covering going on, and once thats over the players will come back in as the price will be near to the value zone, and will start to push at it again. If there's a huge amount of force and its clear that somebody thinks this price is over valued, I just hold it and ride it till it gets to the other side of the weeks value zone. After that, its like going into uncharted waters, we're experienced sailors with good instincts, but its probably better to wait till we have a map. Not worth risking our boat sinking.
Another possibility is the bears fail to move the price down, and there's high volume, side ways movement. Volume will taper off, then the bulls will come in and start the upwards trend again. This is not a strategy I'd use at the open though. Like I said, trades gotten away from the value zone, lets wait for a new one to develop here before we buy. Its like giving us a nice mattress at a price level. There's no point in trading, hoping that some magical bull run is going to happen. That does occur, but its not high probability.
Here's what I mean when I say the value zones for the week. Here's the highest one, a few days ago, with the current price and close.
Like I said, the market could continue. It could do anything. But I've got 2 set ups I'll be looking for that I think are high probability, in that, more often then not, they'll be a winner. Sometimes they'll **** up, but the beauty is, they won't **** up bad. More likely, they'll go sideways on lessening volume, and I exit a small loser or sometimes a small winner. Like the big traders say, cut those losses. But your entry can help you do that too. Feel free to ask questions, (remember, google market profile, way too much to explain on a forum) I make no predictions, but my thinking usually keeps me out of bad trades. I'm patient, if this day doesn't pan out, I just do it again the next day. I'll post my post-day synopsis tomorrow.