Chapter 15

Key Inflection Times of the Day That Set Up Breakouts and Reversals

The market often breaks out or reverses within a bar before or after 7:00 a.m. and 7:30 a.m. PST on economic reports, at 11:30 a.m. PST, and less often around 11 a.m. and noon PST. Very commonly on strong trend days there will be a strong countertrend panic move that will scare people out of their positions, and this normally happens between 11:00 and 11:30 a.m., although it can come earlier or later. Once it is clear that you were fooled by a strong countertrend move, the trend will usually have gone a long way back toward its old extreme, and you and the other greedy traders who were trapped out will chase it, making it go further. What causes the move? Institutions benefit from the sharp countertrend spike because it allows them to add on at much better prices, expecting the trend to resume into the close. If you were an institutional trader who wanted to load up going into the close and you wanted to enter at much better prices, you would be looking to create or contribute to any rumor that could cause a brief panic that ran stops and briefly caused the market to spike beyond some key level. It doesn't matter what the rumor or news item is or whether some institution spreads it to make some money. All that matters is that the stop run gives traders who understand what is going on an opportunity to piggyback on the institutions and make a profit off the failed trend reversal.

The stop-run pullback ...

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