Reversals offer great trading opportunities short term

The broad indexes are making new highs and bringing investors back to the table after testing lower the first week of May. The bounce off the low for the S&P 500 index has been three percent and the follow through today on the upside sets the trade up for even more gains as this unfolds. The Russell 2000 index broke higher today along with the Dow and the NASDAQ is only a few points away from hitting a new high. This is the third tradable bounce off pullbacks or tests of the current uptrend. Some refer to this as buying-the-dip, but I prefer the term reversal as the downside move has established itself of a specific catalyst or news. The news or emotional trade offers the best opportunity as the activity is generally temporary unless the news is validated to be a bigger threat that originally believed or it was proven to invalid. The risk of the trade can be less based on how the reversal sets up and the follow through unfolds.

Sometimes we think of a bottom reversal only after a correction of ten percent or more on the charts. But, if we look at short term time frames you can find mini reversal relative smaller tests of the trendline.  This many times occurs within trading ranges as the broader markets attempt to gain clarity and confidence relative to the previous uptrend. Tonight I have recorded a video on some setups off the recent move as a good example to learn from and look for going forward. The Russell 2000 Small Cap index made a move today that offered an early entry with move above the 200 day moving average. The opportunities in what we can call mini-reversals are positive trading opportunities with manageable risk.

Tonight in a video update I will cover several examples of this setup and trade opportunity. Each shows the entry, stop and target to measure and manage the risk of the trade as it unfolds.  Click below to watch the video presentation.