Bearish Engulfing/Key Reversals Today

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The major averages and most sector ETFs formed bearish engulfing patterns today. After being chopped and stopped several times in the last couple weeks, I am experiencing some emotional exhaustion in trying to play this reversal. However, looking at charts and indicators, I would say this is the best set-up out of any of the last 4 I've tried. Also, any lower close from here will be a 4th failed breakout above the Oct highs.

These choppy environments make trading with tight stops/low risk, very difficult. That is just the way it is and basically has to be that way for a market to reverse. I personally find it easier to deal with this by either not using a stop, and managing risk by devoting a certain percentage of the account (going a little more conservative than seems necessary) or fixed dollar amount to every trade or using a last ditch type of stop level so that you only get stopped if you are way off. That way you are free to exit purely off indicators and don't get whipsawed very often. There are pros and cons to both ways. The main problem with using tight stops and getting stopped out several times, is that if there is any emotional input involved in the decision making process, it is against human nature to keep "hurting" yourself or doing anything that makes you feel bad or insecure, and then you don't persist to finally catch a very large move.

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The hourly chart above shows a fresh MACD bear cross and -DI crossing above +DI in the last hour of the day. Price is just pennies above the Parabolic Stop and Reverse sell point as well. There is continuing divergence on the MACD on this time frame and without price trending up.

My sense is that this is a very significant top forming right now. However, that is a serious minority opinion. But that is fundamental to contrarian thought and investing/trading. Learn to recognize consensus thinking and then act against it at well planned times.

The size and speed of any potential decline off these levels will be the most telling aspect of what is in store on a longer term basis.