How to use moving averages in your trading

Perfect storms are when three time frames all converge in the same direction with pup or mini pup formations.  Usually the time frames are the 8,13,60 minute charts.  However, when the daily chart chimes in with a daily mini pup, this makes the formation ever stronger.  Mini pups are when the lead %d stochastics stalls on the rise as the laggard %d slow stochastics continues to rise to form a wedge like breakout.   Pup (Power Uptick) patterns are when the 5-period simple moving average stalls sideways as the 15-period simple moving average continues to rise.  Eventually, steam builds in the contracting trend channel to cause an explosive breakout above the 5 period moving average usually with upside targets at the upper bollinger bands

ISRG pulled back to test its daily 5-period moving average at 121.50.  When that level held support and bounced on May 4th, this triggered the daily stochastics mini pup.  Once the daily mini pup set the tone, we simply waited for the intraday time frames of the 3/8/13/60 minutes to form pups and mini pups.  This perfect storm set up triggered initially at 3:12pm prompting LONGS at 126.40 for a scalp to exit at 127.60 (the stinky 2.50 coil overshoots), out + 1.20.  We waited for the 3 minute 5-period moving average to catch up and reentered LONGS at 127.45 at 3:30pm to scalp out 128.60 which was the last pivot on the day and the daily upper bollinger band target, out + 1.15.

The DIA has been on a gangbuster run.  The daily formed mini pups meaning upside targets sit at 115.05 with 113.92 as support.  The only problem is that the daily also formed a shooting star which may set up for a daily 5 retest.  Semi’s are starting to recover well but possible too little, too late as the Nasdaq is starting to lose steam.

Good trading gang!

Feel free to send any questions or comments to jay@undergroundtrader.com

Jea Yu has been involved with the equities markets for over 10-years. He specializes with intraday trading in the U.S. equities and futures markets. To receive a free 7 day trial to Jea Yu's Underground Trading Pit, click here or call 888.484.8220, ext. 1.