Latest daily key reversal levels:
(Legend: Mode : green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | W: weekly mode | for more details about these key levels, see: https://lunatictrader.wordpress.com/key-reversal-levels/ )
Comments:
* Today we see momentum (MoM) turn down for the DAX and for gold. So, they are now in mildly bullish mode, which means they may have peaked for a while.
* When MoM turns down after a rally, it is generally a good idea to take partial profits. We see that the DAX is up 1.2% since it went into bullish mode 7 days, while gold is up 5.97% since it turned bullish 29 days ago. Taking partial profits means you remove the risk from the remaining position, and then you just keep using the key reversal level as your stop-loss. This will gradually lock in more profits until the market goes into bearish mode eventually.
* MoM turning down after a rally is also the point where you can initiate speculative short positions to benefit from a possible pullback or correction. It is important to estimate risk/reward before going short when MoM turns down. The risk depends on how far the entry price is away from a recent high (as we will need to use a stop-loss just above a recent high). The reward can be estimated from the key reversal table. If the given market is strongly bullish (dark green) on the weekly(W) level, as is the case for gold, then the daily key reversal level is going to be the approximate profit target. E.g. for gold we see the key reversal at $1274 , which is about 50$ below the current levels. The recent high for gold was $1333.2, which is about $10 above curent levels. So, the risk on a short trade would be ~$10 with a profit potential of ~$50. That’s OK for a quick trade. But one has to reassess the risk and reward every day, because the daily key reversal will come up (reducing the remaining potential in the trade). So, if all goes well, only $35 or $25 of the profit potential may be realized. That’s still not bad for a $10 risk.
* This is just an example of how key reversal levels can be used. Stay tuned for more strategies when my upcoming ebook is ready.
PS: if you are looking for key reversal levels for other world markets or individual stocks, then follow me on Twitter.
Danny
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