This is a great strategy for trading extreme emotions. When a trend collapses price will often slop about wildly until the market participants can settle on a new ‘fair price’ Best used on the shorter timeframes, do not use this strategy if you love the company, its product or the reasons for the preceding trend.
This house is on fire get in, and get out before the roof collapses.
I use the 26 ema as a roof in sharp falls on the five minute chart. Many times i’ll use another strategy on a longer time frame to evaluate a good entry, but even within the five min you can us the 13 ema and sma relationship or the mva price envelopes.
My theory is that when weighted volume ema moves over the sma you have a glimmer of hope. The trend can change quickly but is prone to failure.
Take the entry bravely in size with a tight stop you want a capitulation low candle to set up the entry parameters.
Then set a profit target at the falling 26ema, poor price action here or good action with volume will allow you to monitor on a longer time frame, say the 15 min.
Sell half and take that profit. Leave the rest but cover up or exit if your trailing stop goes or the 13 ema ducks with volume. Every issue has its range for taking profits in this example with MELI i use 11% as a good swing trade profit.
Don’t expect the rally to hold and you will be pleasantly surprised if it does. If not you should have some small yards under your belt, if the issue has opened up enough of a range the initial impulse will repair a trade gone bad or deliver a small gain on a day trade.
I like to use this method for going long in the inverse ETFs too.
Good luck
