Red Dog Reversal Case Study: Spotting Who’s in Control

My favorite strategy — the Red Dog Reversal — helps me spot reversals.

But it can also help you determine a change in active control from the bulls to bears (or vice versa).

That's exactly what happened on Wednesday.

This is the chart I showed that day:

On Wednesday, SPY broke below Monday and Tuesday's lows ($285.58 and $286.03), and then reclaimed them to trigger the Red Dog Reversal long signal.

The stop would go at the low of $285.25.

If I like the follow through, sometimes I take a third of the position home as a swing trade.

And in the updated chart, you can see how the trade followed through for the rest of the week, with SPY getting up to resistance at $294ish.

So what's the big lesson?

When a pivot low holds, that low becomes a battleground. The computers use that level to stop out longs and shorts.

And the movement after tells you whether the bulls or bears are winning.

In this case, the bulls won.

Positions Disclosure: As of 8/30/2019 at 12:27 p.m. ET, Scott J. Redler was long SNAP, GLD calls; is short ROKU, GLD calls