Aug 29, 2013: 2:33 PM CST

This page will serve as an expanding glossary of terms and concepts used in the Idealized Trades Daily Reports (which may also appear in the Weekly Intermarket Report as well).

3/10 Momentum Oscillator:

Our main oscillator, popularized by Linda Raschke, calculates the price difference between a 3 period and 10 period simple moving average.

We use it simply to compare price highs with oscillator highs which is a sign of “confirmation” and expectation of higher prices yet to come (increasing confidence in a retracement or flag trade).

We also use it to identify divergences or “non-confirmation” between price and the oscillator which is a sign of possible trend reversal and that we should have less confidence in any retracement trade taken after a divergence.

A divergence in isolation is not a signal of reversal – price must confirm a trend reversal with a breakdown under a prior price low or the 50 EMA (or corresponding trendline).

More information can be found in the post “How Do I Create the 3/10 Oscillator?

“Breakout into First Reaction” Two-Step Trade:

In the context of a trend reversal from a downtrend to an uptrend, price often breaks above either a knonw resistance level or the falling 50 EMA.

This set-up can also occur on a breakout from a sideways trading range or rectangle pattern.

The “first step” is for aggressive traders to buy immediately on the breakout above resistance or the 50 EMA.

The “second step” is for all traders – especially conservative traders – to buy on the first visual pullback or retracement (reaction) often back towards the breakout level.  The stop is thus placed under the breakout price and the expectation is that price will continue moving higher in a new uptrend.

The “First Reaction” may also be called a “Throwback” to a breakout level.

Cradle Trade:

A specific type of retracement trade that occurs after a trend reversal.

In the case of a downtrend reversing to an uptrend, price first crosses above the 20 then 50 EMA then the 20 EMA crosses above the 50 EMA.

The Cradle Trade occurs when price retraces INTO the cross-over point of the 20 and 50 EMA which serves as a clean entry into support and level to place stops.

Kick-Off (also “Sign of Strength/Weakness”):

A “hidden” signal at the start of a new trend.  In the case of a downtrend reversing to an uptrend, it is a situation where the Momentum Oscillator, Market Internals (Breadth), or TICK form a new intraday high when price is NOT forming a new intraday high.

Richard Wyckoff labeled this a “Sign of Strength” while I refer to it as a “Kick-off” in a new trend (or reversal of the previous trend).

Popped Stops (also “Short Squeeze”):

A “burst” or impulse in price action caused as a direct result from short-sellers exiting the market quickly due to a breakthrough above an expected resistance level (beyond which they have placed stops).

This often occurs on the break above a price resistance level (prior swing high) or 50 EMA on the 5-min chart.

The “Popped Stops” impulse occurs because buyers are entering the market (putting on new positions) and short-sellers are stopping-out of old positions (buying-back to cover).

The break above resistance – and expected “Popped Stops” impulse – creates an automatic breakout entry for aggressive traders.

Stick-Save (also “Stick Save Manipulation of the Market”):

A complex situation where a valid downtrend is in motion and price has set-up a classic pro-trend retracement or flag trade where price is falling lower toward the prior price low or other downside target.

Instead of reaching the expected downside target, a flood of capital enters the market at just the right time to overcome the short-sellers (selling pressure) which results in a sudden upward movement in price, reversing the downside price action.

A “Stick Save” is also a ‘failed retracement’ which often sets up a breakout “Popped Stops” play as short-sellers exit above resistance (see “Popped Stops”).

It is also called a “Manipulation of the Market” because we can envision buyers colluding to flood enough capital into the market at just the right time to overcome the selling pressure and by that action, literally create or manipulate (force) an upside rally into the “Pocket” of stop-losses (again, generating a “Popped Stops” Short Squeeze breakout play).

T1 or Type 1 Trend Day (“Failed” Trend Day):

A Type 1 Trend Day is also called a “Rounded Reversal” or Failed Trend Day.

The session starts with an opening gap and behaves during the morning session as a normal Trend Day.

However, divergences and often “Kick-off” signals occur mid-day at which point price stalls and reverses to break under (or above) the 50 EMA.

By the end of the day, the pattern often resembles a wide “Arc” or Scallop Pattern.

T2 or Type 2 Trend Day:

A Type 2 Trend Day is a weaker form of the T3 “Pure” Trend Day which lacks the full development of a Trend Day.

Variations on a Trend Day may include…

  • a lack of opening gap (yet the remainder of the session developed into a Trend Day)
  • a Break above/beneath the 50 EMA yet the trend still continues (a Trend Day should not see a break beyond the 50 EMA)
  • an initial/morning Trend Day development that stalls into a flat range – but not a reversal – in the afternoon.

T3 or Typ3 3 Trend Day:

A “Pure” or Text-book Trend Day that begins with pre-market futures activity that carries into an opening gap that is NOT filled in the first hour.

T3 Trend Days open with a gap and trade in the direction of the gap for the remainder of the session.

Up-Trend Days begin with an upside opening gap and “trend” or move higher all day into the close.

We look to trade pro-trend retracement or flag trades so long as price remains trading above the rising 50 EMA.

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