Counter-Trend Trade Setup using AGET False Bar

26. April 2009
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I noticed a recurring counter-trend trade setup that has worked very well for the past 6 months or so (perhaps more).  This was noticed on the ES 15min chart, using only PIT data (8:30-15:15 CST), but 24 hour day may work well as well.  The following chart shows 3 setups over the past week and a half.  This setup makes use of the eSignal AGET "False Bar Stochastic" tool, so you must have it in order to fully make use of this setup.

In the chart below, you have a False Bar ("FB") showing "long", then a minor pullback where the stochastic pulls back to the 50% level, but not all the way to the oversold area.  Next price makes a new high.  Best case, the FB goes away and a fresh 2nd FB appears.  Also, best case, you will see divergence on the stochastic when it reaches the new high.  After this new high, a significant trend change!  (As of this writing, the afterhours data is trading at 846.75 (down from the high at 868.75), so that third setup also worked very well).  See 2nd chart below on how to determine how high that second high may go. 

 

The chart below is a zoomed in view of the 1st (left) setup.  The wave up had 3 sub-waves.  Taking a fib extension of the first wave up, puts a target 1.272.  It's best to wait for divergence to form on the stochastic to see which extension price will stop at.  After, you can see a significant gap down.

 
 
Below is a zoomed in chart of the 2nd (middle) setup.  Using the same technique as above, the move upwards consisted of 3 sub-waves.  This final move up also went to the 1.272 fib extension, but missed by 1 tick!  Then fell very hard.
 
 
 
The third (right) setup was slightly different in that the wave that brought us higher highs did not have clear sub-waves to measure.  Instead I took a measurement of the wave up that happened in the morning, then took an extension from that pullback.  Once again, the target went right to the 1.272 level (missed by a tick).
 

 
Fib extensions don't always go to the 1.272 level.  Often it goes to the 1.0 level and the 1.618 level as well.  Depending on the momentum of the move, sometimes it is multiples of a measurement.  The AGET MOB is also a good tool to use for a target.  However, I like the exactness of the fib extensions.  So, perhaps in conjunction with each other.  This counter-trend setup seems to work just as well for shorting as well, with all the rules in reverse.
 
 
 
 

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