Nasdaq QQQ Bear Flag - How to Trade
I'm writing this as a tutorial and a play by play of my trading, also as an analysis of how I traded this incorrectly.
This morning, before the market opened, I saw a perfect bear flag on QQQ (I was using Nasdaq Futures to trade it).
I just wanted to talk about the range of emotions when trading a pattern that clearly shows strong bullish price action, but since the channel is coming after yesterday's huge sell off, we know sellers are waiting patiently for the continuation of the recent trend.
In the morning, I could only draw the bear flag based off the purple lines. The blue lines represent what happened after the market opened. As a side note, I love trading Nasdaq Futures because the patterns are near perfect and well respected. I wont trade SPY because SPY merely reacts to what Nasdaq is doing, and as a result, has more fakeouts and imperfect patterns.
I was anticipating the touch of the top of the bear flag channel, but it's hard to ever be prepared for an overshoot / fake out. When the fake out was happening, I was thinking I misread the chart and bulls will continue to buy and the bottom was is in. It's important to never lose sight of the overall picture, and it's very easy to lose sight of the overall picture when the price is moving bullishly against you. I'm partially writing this for myself as a reminder, and I hope this helps others.
When the price fell back into the channel after the fake out, I imagined bulls went from feeling euphoric to fearful, but still hopeful and embolden from the recent price action. When price tested the top of the channel and confirmed it was resistance, the bulls lost that hope, it was time to bail and it was time for sellers to make their move.
As a bear, (my bias is from the recent sell off, plus see my related idea where I predicted the top of Nasdaq to the exact cent) when I saw the price test the top of the channel as resistance and then drop, I was worried that the price would find support near the previous high, causing me to take profit. I'm an experienced traders and I'm still controlled by my emotions. The price bounced around in this area due to others like me taking profit on their short. The last remaining hopeful bulls that thought the price would find support on the local high, and the fearful bears like me who thought that support would hold. When it was clear that this support wouldn't hold, I lost my solid entry which was at the top of the channel, so I missed the meat of the trade. Bulls started panicking as the sell off took place, and bears joined the down trend in hopes for the price to reach the bottom of the channel. Since this was the third touch to the top of the channel, bears had every right to assume that the price would not only reach the bottom of the channel but it would also break below it. Other bears are not only anticipating that break, but they are betting that the bear flag will play out in full, with the projected target (yellow) being the length of the bear flag's pole when applied to the bottom of the channel. The yellow target may not play out since the overall trend is still bullish, it would be better to believe in a target like this when the trend is bearish on all time frames.
When it doubt, zoom out and stay focused on the overall picture. Even experienced traders like me who have years of experience still take profit early sometimes and are overcome by their emotions. Cheers to anyone who traded this pattern without their emotions holding them back.
Please see my related idea below on where I predicted the exact top of Nasdaq. I'm proud of this prediction, and I was able to predict the top of SPY and AAPL using a similar method. Institutions simply trade between the lines, and despite all of the news about new traders in the market from Robinhood, institutions still run the show and they let everyone know it.
This morning, before the market opened, I saw a perfect bear flag on QQQ (I was using Nasdaq Futures to trade it).
I just wanted to talk about the range of emotions when trading a pattern that clearly shows strong bullish price action, but since the channel is coming after yesterday's huge sell off, we know sellers are waiting patiently for the continuation of the recent trend.
In the morning, I could only draw the bear flag based off the purple lines. The blue lines represent what happened after the market opened. As a side note, I love trading Nasdaq Futures because the patterns are near perfect and well respected. I wont trade SPY because SPY merely reacts to what Nasdaq is doing, and as a result, has more fakeouts and imperfect patterns.
I was anticipating the touch of the top of the bear flag channel, but it's hard to ever be prepared for an overshoot / fake out. When the fake out was happening, I was thinking I misread the chart and bulls will continue to buy and the bottom was is in. It's important to never lose sight of the overall picture, and it's very easy to lose sight of the overall picture when the price is moving bullishly against you. I'm partially writing this for myself as a reminder, and I hope this helps others.
When the price fell back into the channel after the fake out, I imagined bulls went from feeling euphoric to fearful, but still hopeful and embolden from the recent price action. When price tested the top of the channel and confirmed it was resistance, the bulls lost that hope, it was time to bail and it was time for sellers to make their move.
As a bear, (my bias is from the recent sell off, plus see my related idea where I predicted the top of Nasdaq to the exact cent) when I saw the price test the top of the channel as resistance and then drop, I was worried that the price would find support near the previous high, causing me to take profit. I'm an experienced traders and I'm still controlled by my emotions. The price bounced around in this area due to others like me taking profit on their short. The last remaining hopeful bulls that thought the price would find support on the local high, and the fearful bears like me who thought that support would hold. When it was clear that this support wouldn't hold, I lost my solid entry which was at the top of the channel, so I missed the meat of the trade. Bulls started panicking as the sell off took place, and bears joined the down trend in hopes for the price to reach the bottom of the channel. Since this was the third touch to the top of the channel, bears had every right to assume that the price would not only reach the bottom of the channel but it would also break below it. Other bears are not only anticipating that break, but they are betting that the bear flag will play out in full, with the projected target (yellow) being the length of the bear flag's pole when applied to the bottom of the channel. The yellow target may not play out since the overall trend is still bullish, it would be better to believe in a target like this when the trend is bearish on all time frames.
When it doubt, zoom out and stay focused on the overall picture. Even experienced traders like me who have years of experience still take profit early sometimes and are overcome by their emotions. Cheers to anyone who traded this pattern without their emotions holding them back.
Please see my related idea below on where I predicted the exact top of Nasdaq. I'm proud of this prediction, and I was able to predict the top of SPY and AAPL using a similar method. Institutions simply trade between the lines, and despite all of the news about new traders in the market from Robinhood, institutions still run the show and they let everyone know it.
My goal is to find the best risk:reward setups. For instance, if you risk $1,000 at a chance to make $5,000, you can afford to be wrong 4 out of 5 times and still not lose money. I hit my targets over 50% of the time.
