Is it just me or was today a replay of Friday? Was it live or was it Memorex? Remember that? I think everybody and their dog can see a wedge now. The odds appear 50/50 as to whether it will break down as a descending triangle or break up as an EDT. Both daily volume and volume in the closing minutes have diminished each of the last 3 days while CPCE is at extremes only seen a handful of times in 10 years and other oversold indicators have been somewhat relieved.
I've mentioned that the primary exception to my Dynamic RSI rules is an EDT/wedge. With an obvious wedge in SPX now, that takes away one strong argument I had for a 2-day bounce (which we partially got today) but not all of them. The path is now very muddy and it's probably best to either stand aside or be only partially short since that's the larger trend direction. The possible EW counts have expanded again, so it won't help us trade too much until we see the move out of the wedge. The System is looking for shorts, but it missed an opportunity this morning and will stand aside until a new setup appears. The situation still remains that a downward SPX break will likely result in a bottom on or near the Jackson Hole meeting on the 26th and an upward break will likely result in a top near the same event. August 26th is on the early side of the projected Sep 7th cycle low but very possible. If we do get a low near August 26th, we'll likely get a straddle low (lower or higher low) a few days after Sep 7th based on common behavior for early lows.
I understand that the System rules can seem overwhelming, but let me try to simplify it for you. Keep in mind, the main benefit to using any back-tested System is that it gives you an edge with the odds and good discipline (money management). Here are the System's simplified rules...
1. Determine the short-term trend - up, down or neutral. I use a 38-day cycle +/- from RSI momentum low, daily 3-candle s/r, position above/below key MAs and Fib retracement from a key bottom to somewhat subjectively make that decision.
2. Determine whether to use 2 or 4 candle entry/exit. When neutral, I use 4. When trading with a trend, I enter on 2, exit on 4. When expecting an imminent reversal due to cycle and extreme indicators, I enter/exit on 2. I extend the stop slightly beyond 2/4 candles (.25% or slightly more to a key pivot/MA) on likely significant reversals.
3. Never enter a trade more than 1% from a previous pivot unless you see a 30%+ retracement shortly before or after the s/r break.
4. Take profits periodically and reload on retracements. The System used to take 25% profits every 1% but I have been trying to let things run a little further due to the volatility and expected downtrend. I also take some profits when my daily reversal indicators such as NYADV, TICK, TRIN and Dynamic RSI signal a likely imminent reversal or when key MAs/pivots are approached. Most recently, I started looking at SPY 5min volume spikes and TRIN/TICK spikes to pick more precise profit-taking levels and reload points. The key is to take some occasional profits to give yourself some protection, mental edge and reload ability on the inevitable retracements but not to take excessive profits or fail to reload which keeps you out of the big money made on strong trends.
So, there are some nuances to the rules that have evolved with backtesting and trading experience, but the primary key is to follow the 4 basic rules. Once, I even backtested a few months of charts to see what would happen if I used the 2-4 candle System to trade against the actual trend identified in Rule #1. Interestingly, it only lost a marginal amount meaning you ain't gonna go broke even if you get the trend wrong occasionally. I hope that makes sense. Good luck.
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