Failed-breakout overlays on trending markets

The middle of the move

Trend-following is framed as capturing the middle of a directional move, while traders still try to enter earlier and stay later than that middle. A momentum-strategy is the procedure that stays with an established directional move and treats that middle as the primary holding period.

A pause is not a reversal

Identifying a trend is treated as incomplete unless a trader can also separate a temporary high during an advance from a peak that marks a reversal.

A reversal hypothesis is formed when a market prints a new high or low but fails to follow through, on the premise that stops clustered just outside recent extremes were not confirmed. Failed-follow-through is that new high or low when price does not continue in the breakout direction.

A twenty-session-extreme fade

One long fade requires a 20-day low, then a later lower 20-day low after at least four sessions. The entry is a buy-stop five to 10 ticks above the prior 20-day low, and the protective stop is one tick beneath the entry-day low. Shorts reverse the same rules. That rolling 20-session high or low is the twenty-session-extreme used as the reference for the later failed-breakout entry.

A same-setup variant delays that buy-stop until the session after the newer 20-day low instead of placing it on that day.

Editorial: this is the mean-reversion book. It fades a new high or low when follow-through fails, aiming to enter near a suspected extreme with a nearby invalidation. It does not replace the trend middle.

Divergence as a warning

Divergence is a chart condition in which price prints a new extreme while a momentum oscillator moves the other way. Price-indicator divergence is defined as price and an oscillator moving in opposite directions. A new price high unconfirmed by the oscillator is treated as a warning of a possible rally failure, not as a standalone forecast.

MACD, RSI, stochastics, and a 3/10 oscillator are presented as interchangeable vehicles for that signal, including on hourly charts. Missing oscillator-confirmation is the divergence signal.

Candles, waves, and which book is open

Pairing a failed-extreme test with a bearish engulfing candle at an advance high, or a hammer at a decline low, is proposed as a way to intensify a countertrend signal.

Impulse-and-correction wave rules, such as a third wave longer than the first and a fourth wave that should not undercut the first-wave low in an uptrend, are used to project a later wave and to choose between staying invested through corrections and waiting for pullbacks of 50 percent or more.

Editorial: the wave rules help the momentum-strategy decide whether to hold through a correction or wait for a deep pullback. They do not open the fade book by themselves.

Overlapping procedures

Trend-following and extreme-fading are treated as overlapping procedures rather than exclusive camps, and familiarity with an oscillator's divergence behavior is ranked above which oscillator is chosen.