ONE DAY WONDERS
I have pointed out days that have huge one day moves and you can see that with all but one of them, the one day was it. This is what I call One Day Wonders. Any time we take a trade we all want the market to just move huge in our favor immediately. I would argue that is exactly what we don't want. As you can see here, virtually all of these trades wound up scratches or at the very least you had to sit through a lot of crap before they wound up working out. We don't want the market to move so far one day that it immediately becomes overbought or oversold. If that happens we often get the painful retracements.
It seems to be more of a phenomenon of against the trend than it is with it. The logic is the you get these moves that start and all the scared money panics and exits their positions that are with the trend. This accelerates the intra day move into the close. Cooler heads prevail overnight and the huge move gets consolidated or reversed a good portion of the time. We do seem to be seeing a lot more of this now than we used to. It seems to me that the large funds with the brain power they have, index all their trading off the S & P 500. When it starts to decline they sell everything, when it starts to rally they are all in buying.
The question becomes, how do we handle these types of days? If you get in the habit of being a jack rabbit and just taking profits quickly on these days you will get a good feeling initially. You can take good profits for hours of work. However, I can assure you that you will never ever catch even a medium sized move if you get in the habit of doing that. The big move and the one day wonder are going to look the same at press time. The fourth arrow is one such instance. You got a big initial move down, that almost immediately retraced it's full move. However, look at what followed. Those are the types of moves you want to catch. My argument would be that you should live with getting a lot of scratches trying to get these larger ones and just accept that one day wonders happen. However, if you just want to always look to hit singles, take the money.
We had what appears to be a one day wonder at the moment the other day in many markets, the currencies, stocks, etc.. We are now retracing that move back up and for all I know we will just take off. However, if we happen to take out the lows of the one day wonder day, we could have a very big down move on our hands, somewhat like that Crude Oil move on the chart above. For me it is worth keeping my stops back in case that happens and being willing to scratch my trades if we just keep rising. Some of my short term indicators are pretty weak here, so they would confirm price if it happened to go back down again. I don't really have an opinion as to whether we just take off again or move down more, I just have no idea. What I do know is that my indicators show weakness that supports the move if it starts going down. They do not support it rising yet. I also know that they are not always right.
I also have something I do not recall ever seeing before. There is a triple negative divergence on both the daily and intra day tick charts in Crude Oil right here at the same time with one of my proprietary indicators. This is extremely rare and should in theory mean a large move down is about to happen in that market. As with it is with any divergence, if price continues up this can work itself off, but it is there at the moment.
The chart below is just showing the possible one day wonder in the SP 500 from the other day.
Here is a market I have been talking about recently, Bonds. I suppose this all depends on whether the one day wonder in the SP 500 turns out to be one or not. However, this is a market that is setup bullishly for the most part. As per our topic of late, divergence with POIV is not there in the traditional sense, but it is lagging the price quite a bit. I have labeled prior more traditional POIV divergences which you can see have signaled nice moves recently here.
YA I know you are struggling with this issue of divergence so I would suggest not worrying about it. It is one of many tools I use, and is not the grail. It is one little thing I point out occasionally. I think you are trying to look at one bar and when that bar moves and POIV does not as much you think that is a divergence. For me it has to just be obvious on the chart. You cannot force anything in trading. If you have to think too long about whether something is or is not something you are looking for, it generally is not and you should wait or move on. I suppose a really aggressive trader could buy Bonds today on an upward breakout, but I am not going to. I am however looking for a buy signal here.
The divergence I have marked at the high is not a traditional one in that price did not make a new high, but it was close and POIV was a lot weaker. That type of thing is also acceptable to me. You just have to understand that there is no magic to any one thing. There is no holy grail in trading. It is all about making decisions based on the tools you have at hand. I may use the same tools completely differently than someone else does.