tlow, GatlingGun, NoDoji, WentFishing:
RE: 8/27/10 Friday's sudden drop on ES
FWIW, here are my observations, and some suggestions. It might work out as a good trade if you are willing to take the risks.
1. On an intraday basis, a sudden huge drop in ES often trigger a big bounce. Very sharp reversal. Happens on a dime. The real tricky question is: how do you know where the bottom is? You are trying to catch a falling knife. The cut can be deep if you get in early! On 8/27/10, ES dropped about 12 points only. But on 5/6/10 (flash crash), ES dropped 40+ points before the bottom was reached!
A gap down (cash index) doesn't count. A continuous, "in the middle of the day" kind of big drop would be a potential candidate.
2. The more severe the drop, the bounce can be just as big as a knee-jerk reaction.
3. The magic (from what I observed)... seems to be a "10 minute" mark. Very carefully ID the origin of the big drop. Mark the time. On 8/27/10: from 06:58 am (PDT) to 07:08 am - the bottom. On 5/6/10: from 11:35 am to 11:46 am. The bottom.
Don't try to stand in front of the train before the 10 minute mark.
If you don't want to take the risk, let other pioneers to do the work. But quickly measure from the bottom - a Fib... when it seems established. If the price bounces higher than the 23% mark... here is your cue to get in. Risk the amount between 23% and 0%. Or maybe risk 12%. As your stop. Buy the bounce. A bounce usually is good til at least 60%-70% of the drop. And on Friday 8/27/10, it went beyond the the origin of the drop. Very lucrative.
This kind of opportunities doesn't come often enough. As a trader, we should take advantage of it.
Another similar event that happens on a more regular basis is the FOMC Announcement day about the interest rate. 8 times a year. Around the announcement time, you typically see wild swings on the ES. And many times wild reversals. Look at some of those past cases and see. Sharp moves trigger sharp reversals.
RE: 8/27/10 Friday's sudden drop on ES
FWIW, here are my observations, and some suggestions. It might work out as a good trade if you are willing to take the risks.
1. On an intraday basis, a sudden huge drop in ES often trigger a big bounce. Very sharp reversal. Happens on a dime. The real tricky question is: how do you know where the bottom is? You are trying to catch a falling knife. The cut can be deep if you get in early! On 8/27/10, ES dropped about 12 points only. But on 5/6/10 (flash crash), ES dropped 40+ points before the bottom was reached!
A gap down (cash index) doesn't count. A continuous, "in the middle of the day" kind of big drop would be a potential candidate.
2. The more severe the drop, the bounce can be just as big as a knee-jerk reaction.
3. The magic (from what I observed)... seems to be a "10 minute" mark. Very carefully ID the origin of the big drop. Mark the time. On 8/27/10: from 06:58 am (PDT) to 07:08 am - the bottom. On 5/6/10: from 11:35 am to 11:46 am. The bottom.
Don't try to stand in front of the train before the 10 minute mark.
If you don't want to take the risk, let other pioneers to do the work. But quickly measure from the bottom - a Fib... when it seems established. If the price bounces higher than the 23% mark... here is your cue to get in. Risk the amount between 23% and 0%. Or maybe risk 12%. As your stop. Buy the bounce. A bounce usually is good til at least 60%-70% of the drop. And on Friday 8/27/10, it went beyond the the origin of the drop. Very lucrative.
This kind of opportunities doesn't come often enough. As a trader, we should take advantage of it.
Another similar event that happens on a more regular basis is the FOMC Announcement day about the interest rate. 8 times a year. Around the announcement time, you typically see wild swings on the ES. And many times wild reversals. Look at some of those past cases and see. Sharp moves trigger sharp reversals.
Seriously: trend day, Nod is profitable; range day, Nod in the green; reversal day, guess who made money?; choppy morning, followed by a killer breakout, a 70% retracement and then a crash after Martians land in the White House lawn? Yep, Nod in positive numbers. (I hate her, she makes it look so damn easy 
)