011900
Our intraday S&P forecasting service is now a reality. Thanks for all the ideas and beta test offers we received. We appreciate all your help. Let's take a look at how to use this new tool. Below is a chart for the 19th:
The heavy blue line is the forecast for this day, emailed out the previous night. The thin red line is the inverted forecast, which just means that the forecast got turned upside down. Price will follow one of these two forecasts during the day. We specifically chose this day because it should be instructive to our current subscribers to see how to deal with an inversion.
Note that there are two major turning points in the forecast. The first comes at 10:50 and the second at 1:50. We have marked these as "turn 1" and "turn 2" on the chart. These are the times when you should really focus on finding a good trade. We will look at both of these places in turn and discuss what was happening at each.
As we approached the first turn, it should have been clear that price was following the normal blue forecast. We had a rally right into 10:50, and then the market flattened. Looking ahead, we expect a down move to develop that will last until the 1:50 point. This is the setup process of the trade. All that is left is to check confirming indicators for sell signals.
Adaptive SlowK (red oscillator) gave us a sell signal at the top, and MA_Momentum (yellow) gave a divergence signal at the second top. This is a compact double top formation with a signal at each top. We could have used a trendline break to enter the market, or could have jumped in at either of the two sell signals just mentioned. As it turned out, the forecast inverted around noon and we would have been stopped out of the trade much sooner than our 1:50 target. We would not have lost much, and might have even made a little depending on our stop tactics.
Now that we got stopped out, what should we do? The answer is to wait for 1:30 or so when our next important turn should occur. This is also valuable information - it tells you when to go take a break and have lunch. As we approach 1:50 we might be a little confused as to which forecast we were following. Moving averages help in this case. But if we look at the confirming indicators, we've got a bearish divergence signal and adaptive Stochastics just crossed below 80. In this case, we don't need to be 100% confident of the direction of the forecast since we can get that from the confirming indicators. The fact that we're at a turning point is the most important thing. This trade was worth around 10 points if you were on your toes at the right time.
Hopefully this showcase will clear things up about how to deal with inversions. Although this is not a mechanical system, you can apply a mechanical method to interpreting the forecast, which is what we did. Find the turning points, determine direction, and consult 2-3 good confirming indicators. Finally, don't forget about trailing stops!