In this chart, the three red arrows are confirmations of a downturn in wheat prices. After a strong, sustained move in one direction, I usually won't take the opposite direction until I have multiple confirmations. Here are three confirmations shown and numbered on the chart below, and explained following:
- The Klinger Volume indicator turns first. It is a leading indicator, and has alerted me to an imminent downturn. It has also indicated to me that I must prepare to liquidate my long trade.
- When prices close below the Exponential Moving Average, it is time to liquidate my long position and prepare for what may come next. Technically, this is also the best point to go short, but after such a strong move up, I want additional confirmation.
Sometimes, following a significant move upward like this, longer-term charts (I use the 15 minute) may provide price support at a future time for prices to continue upward. However, I will take a short trade in the meantime, keeping in mind that I will keep a tight leash on the short trade, and will probably go long again when the EMA on the 15 minute chart approaches prices, providing dynamic price support. Then I will go long again. - When the Bollinger Moving Average (yellow dotted line) turns down or flat, I will be ready to take a short trade once price touch the lower Bollinger Band.
