Market Exuberance on the STI

On the daily charts we can see there was a pretty little triangle pattern which made a strong break to the upside.
But do you notice the divergence with volume?
Price is rising on falling volume, this usually indicates weakness in the rally.
(refer to pic for a better idea of the triangle and price-volume divergence)
If today’s candlestick forms a doji, I’d take some profit off the table.
It’s the weekend! Take the money and spend it all!! (well ok, save some as well..)

I was expecting more of a retracement after the break before taking any long entries.
However, it seems that the market exuberance has fuelled yet another monster rally.
Instead of chasing the markets, I am more inclined to be patient and wait for a retracement.
I might miss the lows this time, but it’s perfectly fine!
As a trader, I’m looking to trade movement, be it buy low sell high, or buy high and sell higher. It still produces the same result, profits.
The only difference is in risk management, chasing the market would mean accepting 2 disadvantageous implications.
1) you’ll have a wide stop.
Unless you’re willing to take on a bigger loss, should this trade go wrong, this probably means you’ll take a smaller position size.
2) smaller risk/reward ratio
Regardlss of where you entered the market, the level of the next reasonable target resistance area remains the same.
Therefore by taking a late entry, you’re
a) lengthening your distance to your stoploss
b) shortening your distance to profit
your risk/reward ratio will become more unfavourable.
 
Btw, for the adventurous ones, during this period, you could take advantage of the volatility to do some intraday trading as well.

Be well and trade well!
Ferrowolf

triangle and volume divergence