Review of a Trade Set Up: The Snap Crackle Pop Trade

This is a phenomenal set up in the forex and futures market.  Today, there was a great opportunity to go long the Eur/Usd with the Snap Crackle Pop trade.  The setup is basically just a "swing low" that most traders are familiar with.  A swing low is a 3 day pattern where one bar's price action is surrounded by higher highs and higher lows. Swing traders and day traders use these to go long and place a stop under the low of the swing low. The slight difference with this setup is that a couple of conditions have to be present on top of the swing low.  Let's use the recent price action in the Eur/Usd for illustrative purposes.

1.  Snap -- the instrument needs to me massively trending down and making new lows.  This is the important part of the trade that distinguishes it from a normal swing low.  The more bearish the better.  In the chart below, you can see that the Eur/Usd just broke a major support level and looked like it was going to drop like a rock.  This entices a bunch of traders to hop on to the short..even though they are late to the party.

2.  Crackle -- the crackle is when buying action kicks in and the Eur/Usd trades back up and closes near the highs with a long tail on the candlestick/bar chart.  This is commonly referred to as a bullish hammer.  These are the pros trapping the amateurs by fading the obvious "short trade" which leaves amateurs scratching their heads.

3.  Pop -- if buying continues, we wait for prices to break above the prior highs and we enter a long trade on that break.  The key to this trade is to be nimble and remember that you're probably trading a counter trend.  I like to trail a stop under the daily lows or drop down to a lower time frame (like the hourly) and trail an atr stop to get me out.  These trades usually last about 3 or 4 days (or bars on other time frames).

Here's the chart:

This trade is taking advantage of the retailers and the traders that are late to the party, over leveraged and not taking their losses.  We want to see a text book short sell that fails and traps these traders and then we ride it up as their stops are hit or when they finally throw in the towel and admit defeat.

Sound brutal?  Well no one said trading was nice.  The forex and futuers markets are zero sum markets and either you're the loser or you are taking the loser's money.  This is one of my favorite setups.  It works on all time frames but obviously, the bigger time frames like the daily chart make for bigger moves.

Hope everyone is trading well.

TLT

Get Ready for Round 2 with Winn Dixie

Winn Dixie (WINN) is poised for take off again.  After rocketing from 6.50 to 9.50 very quickly and then pulling back, it appears that buying order flow is driving it back towards the highs.  I'm still long this one from before but I am probably going to add to it.  Below is a breakdown of the trade.

 As you can see from the above chart, the weekly chart just had a crossover on the 20 and 50 week moving averages...possibly the beginning of an uptrend.  Furthermore, the Volatility stops are still in "buy" mode.  I'll be targeting an add between 8.50 and 8.00 a share.  I'll set an initial wide stop at 7.30 and then trail the stop with the volatility stops.  We'll see what happens.  The market overall is starting to look stronger via market breadth and sentiment indicators.  This stock could really take off if buying hits the general market.  As always, time and price will tell.

TLT