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Fractals 
Elliott Wave 
Classic Technical Analysis 
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Macro 
Sentiment 
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The Real Drivers of the Market 

Preparation brings success and there’s no better way to prepare for each session than with the Matrix Daily Edge. This is emailed before each US session and outlines actionable ideas, directional bias, and important levels in the S&P500. It also looks at "What's Hot", be it commodities, stocks, crypto or forex.  

 
The Daily Edge uses a top-down proprietary system which starts with weekend analysis of the higher timeframes and then dials down to focus on each session. Fractals, Elliott Wave, and Demark exhaustion signals are all incorporated, as are macro drivers and analysis of the market narrative. It is much more than just a few lines on a chart - it is a system developed over 15 years and proven to deliver a consistent edge. Prep for the session ahead like a pro. 

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Days 1-3

 

3 bar surges are common in all timeframes. Daily and weekly are the best to trade but the concepts remain the same in all timeframes.

Day 1 is the day of the reversal. Ideally, we see a reversal pattern at support and a valid trade type such as a pullback in trend. A starter position can be taken on day 1.

Day 2 is the day of the confirmation and should consist of a strong move back higher with a close near the highs of the session. Often a day 2 opens slightly higher and pokes around the high of day 1 or gap fill and then makes a low in the first 15-30mins before accelerating higher. Positions can be added to on day 2.

Day 3 is often a day of rest, even a reversal back down. Many traders scale down positions into any strength. Day 3 is not a good day to buy, especially if new highs fail and drop back into day 2's range.

Break-out Trades

 Breakout Trades

 

The Intel (INTC) chart below shows us a high probability break-out . It has several key features:

·       breaking above a significant level. Ideally, this is at all-time highs, but in this example it is at the $53 level which has acted as resistance 4 times. Note how each time this level has been tested the downside reaction is less. This tells us a break-out is imminent.

·       Ideally the break-out comes in a potential wave iii of 3 in an Elliott Wave sequence. This should mark around the half-way point of the trend and tell us there is much more upside. A break-out in wave 5 is something to avoid, even fade.

·       The break-out should continue higher and should not re-test the break-out level for at least a few sessions, if at all.  Beware if the break-out session closes weak.

·       Above average volume is desirable.

Entry is best ASAP on the break-out day if the stop-out level is not too far. In the INTC example, we  could have bought the open around $54, with a stop just under $53.  If the stop-out level is too far we have to wait for a consolidation when channels/MAs catch up with price. This would be less of a break-out trade and more of a pullback in trend - see appropriate blog.

Gap Trades

 

Gap Trades

To trade gaps effectively we must be able to identify them and understand their characteristics; all gaps are not equal.

Traditional gap theory (see evidence) describes the 3 main gaps in a trend sequence. We can clearly see these gaps in the Apple chart below.

·       First there is a break-away gap, usually near (but not right on) the lows. This usually comes halfway through wave 1 and breaks downtrend resistance. The break-away gap usually gives several chances to buy as it generally dips back down again in the next correction and the later for wave 2.

·       The continuation / midway gap comes next. This should come in wave 3, ideally wave iii of 3 and it is usually the gap that comes on earnings or an event and breaks strong resistance. The continuation gap does not give many chances to buy but there is a very high probability set-up with great risk v reward if we buy early enough: as we know this gap should come around half-way through the trend, we therefore know there is plenty potential reward. We also know the gap should not fail and drop back down to fill the gap, so this defines our risk.  In the AAPL example, we saw a $21 rally into the mid-point of the gap, so we should see at least another $21 rally before the next large dip. If we bought near the open, there was around $5 risk into gap fill. This gives $5 risk for >$21 reward which is better than a 4:1 RR trade.

·       The exhaustion gap comes when the trend sequence is mature. It very often reverses for gap fill, although not always straight away. Be especially careful if it comes near strong resistance which breaks and then fails. If we identify an exhaustion gap we can use reversal patterns to look for shorts back to gap fill.

Not all gaps are as clear as the ones described. Gaps that do not break any support or resistance or stay inside the previous session's range are sometimes called common gaps. These often reverse and fill the gap to the prior close.

All gaps provide support and resistance, both at the gap window, and at gap fill. We can form a trade around these levels in confluence with other factors, but we also need a valid trade type. Support/resistance on their own are not a good enough reason to enter a trade. 

Weak Low / High

 Weak Low / High

 

A weak low (or high) is made when the session closes very near the low (or high) of the session. When this happens, there is no evidence of a rejection/reversal and there will likely be further price discovery in subsequent sessions to find a level where prices are judged unfair (leading to a reversal). 

To put it another way, the session closes with unfinished business.  This is especially true when it comes at the end of a strong session. 

A weak low below broken support is a good short candidate. A weak close right on support is trickier - hard to buy (possible if good confluence) but not a short either. These are easier to trade if the low is spiked and reversed in the next session, but this does not always happen so neatly.

 

Examples -

 

the ideal situation - the weak low is spiked the next session and a strong reversal transpires

 

 

this shows a strong move and weak close in the first bar down. This follows through the next session as expected. A weak close below support (200dma) looks dangerous, but is invalidated by the move back through the 200dma and strong close above the weak bar

 

 

this example looks like a weak close, but is actually a doji pattern and price never took out the opening price. A truly weak close drops into new lows near the end of the session.

 

an ugly bottoming pattern, but the weak low was invalidated the next session with the new highs and strong close.

 

a weak close followed by an inside bar and then a break higher (inside and up)