"Jackhammer"

[TinGull]

JP loves this trade, and this is a pretty classic example. Looking at the market right now after I took this screenshot isn't a good follow through of it, BUT it gives you what you want to look for.

Note how price formed a topping range at the 30min low. Then price broke down from that range (Entering the 4th phase of the market cycle) and then all of the sudden price is met with TONS of volume at the 200ma (this is a 5min chart). That excessive volume on that kind of a range body closing where it did (those VSA students will know this) is showing you buying. That bottoming tail is "excess" in the market. What is the job of traders? To take advantage of that excess. So, when participants started to buy at those lows, an aggressive trader would buy the close of that hammer. That would get you in at 13429-430. The top of that move happened to be a little above 460 giving a 30 point + trade. I would normally expect a jackhammer to give more upside than that.

This is where mixing candles with some trader psychology comes into play. When seeing SUCH a strong reversal candle there's gonna be lots of buyers that bought inside that candle and along the way up. When all of the sudden price stops and a candle engulfs almost that whole move, what happens? Those guys who bought it DUMP it. That's what is happening right now as I watch. The YM has dropped over 100 points in the last 20 minutes and is pumping TONS of volume into these bars.

So, with seeing that powerful signal get rejected about 30 points later, one move is to short the failure. Failure are often times much stronger than the actual strong signal itself. The stronger the original signal, the stronger the failure.

So, just a note on the "Jackhammer" candle formation.

[Nick1984]

Hey Tin nice chart, just one question. In the 2nd last major paragraph you mention that after the guys who bought in on that reversal candle with the long wick see price stalling they suddenly dumped it? Did the price break below the 200 EMA again and keep on going lower?

I haven't been able to watch the markets for a while now cause of Uni commitments so am a bit clueless as to whats happening apart from the daily news reports.

[TinGull]

After that the market just fell apart. I think the YM ended up losing another 100 points or so from that point.