The very short-term day trader that seeks out levels with which to trade can also use many of the techniques we teach on a daily basis with retracement on the daily interval charts.
OptionInvestor.com isn't really a day-trader's resource despite many of the comments we make in the market monitor. But traders that are watching things rather closely on a daily basis sometimes are looking to make some cash on short-term moves with a lesser portion of their capital by scalping some points here and there in the indexes.
A 60-minute chart of the S&P 100 (OEX.X) with conventional retracement overlaid looks quite similar to what a trader/investor will find with some of the daily bar charts that look at a much longer time-frame.
S&P 100 Index Chart - 60-minute interval
Trading levels can be fun and profitable, even for the short-term day trader. If you trade levels, you trade like an on/off switch. Shorting a breakdown, then follow with a stop just above a retracement level. Then if the next lower level is violated you short there, then follow with a stop just above the next higher retracement. Then if a lower level is violate, you do the same. Very systematic. This morning's "rally" to the 50% retracement level at $569.75 may indeed had a bear that had shorted at 1,2 and 3 stopping out. It may also have had him/her placing some bids at 61.8% retracement as that trade at 50% was the first time in the downward trend that the OEX.X has actually been able to hit a higher level of retracement, after a previous level had been broken.
Do you see how the decline in the OEX.X actually may have some bears that shorted up at $584 looking to do some covering as they lock in short-term gains.
This is "hard to imagine" for us smaller retail investors. Now imagine you're an institutional trader and putting about $1 million at risk in each trade.
A bull in the OEX that considers him/herself a short-term trader is not at all interested in "playing" the OEX at this point. The trend is down. Good traders try to avoid trading against a trend as it pertains to the time frame they are trading.
Now, I've also had retracement on the daily chart interval from $600 to $491. See the "commonality" of the $545 level at 50% retracement on the daily interval with that found at 0% in the 60-minute interval? Remember, the 50% level is a RESULT of the range. It may not necessarily be something that was "made up".
This has a trader thinking firmer support most likely found at/near the 546 level, but we'll monitor the $559 level as well.
S&P 100 Index Chart - Daily Interval
Day traders will "dissect" larger ranges found within the daily interval charts. First sign of strength from the 60-minute chart would be a sustained move above $570, but that then leaves just $9 points to gain if compared to the daily interval chart. I'd expect the OEX.X to try and "seek out" the $550 level for better bullish trades to begin to exist.
We can then monitor the levels of retracement to see if that holds true.