An Experiment

Today, as I have an appointment later and need to go out, I tried something a little different.  At the market open I watched the one minute chart (see below) and traded a principle, purely on this timeframe, to take advantage of the market volatility.  It was a successful experiment.  Take a look at the one minute chart of the Dow Jones below.

At Point A, a few minutes after the market open, we have seen a down-move.  At Point A we have an up-bar on low volume (volume less than the previous two bars).  That means there is little interest in the up-side from the professionals.  I entered the market at Point A, short.  At Point B, the market has, over two bars, tried to go up, but on low volume.  This was confirmed on the two minute chart as one bar on low volume, so I knew to stay in the trade.  The market then falls nicely to Point C, but the volume as you can see is very high on this bar, and the next bar is up.  This is possible buying and a sign of strength, and this is confirmed at Point D - a low volume bar which comes back down into the area of  Point C (with the very high volume).  This is a classic sign of strength.  When the market goes back down into an area which previously had high volume (Point C) but on low volume, this means the supply has dried up - there is no interest in the down-side, and the market is likely to go up.  I exited my trade at Point D and took 10 points profit.  It's important to exit a trade when you see an opposite sign, ie. a sign of strength when you are short, rather than to wait and hope it will be OK.  This is not always the case.  The market is unrelenting and will chop you up into little bits at every opportunity.

This was an experiment, and not something I would recommend, and the utmost caution was required.  However, it does show two principles clearly - one of strength and one of weakness.