So trend days… One of my favourite topics.
A trend day is a day when one side controls the action from start to finish with a massive daily range.
Trend days look like this on a daily chart
And like this on a 5m chart. See how small the pullbacks are? And every pullback is a sell?
We are looking for a continuous move lasting the whole day… that’s key.
Basically a massive up or down day.. but more than that
It’s like a micro sized long running short squeeze, where buying pressure is strong and consistent all day, continually squeezing the shorts and then stopping them out. (or vice versa for down trend days)
Why do they happen? Most of the time the bulls think the market is about to go up while the bears think it’s going to go down.
Usually you can make at least some kind of case for both sides. But sometimes, something happens that makes the bear (or bull) case untenable.
Usually that’s a market that looks toppy and having trouble overcoming resistance at the old highs..
Which then blasts through resistance… breaking the bears hearts and causing them to cover.
Like here. It looked likely to fall… but caught bears BY SURPRISE
That surprise causes PANIC!
And it’s an interesting dynamic. Bears cover their shorts by buying (adding to buying pressure)
Sideline bulls go “NOW IS THE TIME!!!” and pile in long as well (adding to buying pressure)
Because a trend day up happens when the bears have given it their best shot and failed… usually they have blown their loads… and cannot mount any effective selling pressure for a while. The bulls get a free kick… and the bears get a kicking.
The market going up attracts fresh buyers, squeezes more shorts who have to cover (adding to buying pressure)
That’s all very normal stuff. Where it gets interesting is that on trend days, virtually and indicator/oscillator will f*ck you over with false sell signals.
That means RSI, stochastics, Williams %R, 3/10 oscillator, anything at all.
Check this out. I’ve put some common indicators on a chart for that trend day we examined earlier
See how on trend days overbought/oversold cannot be trusted as a concept?
How ALL oscillators and indicators tell you to buy, when you should be shorting?
In fact, short term traders and algos getting positioned counter trend for mean reversion is one of the things driving trend days.
So how to trade these bad boys? Well for a start early recognition is EVERYTHING. As soon as you notice, try and get at least a small position on with a wide stop.
There are always clues. Usually in the breadth.
Remind me to cover that tomorrow… It’s just too complicated to do in one day.
What we are looking for is these things. The more of them you notice the more suspicious you become that it might be a trend day.
A large gap at the open with no or little attempt at gap fill is a dead set giveaway. Personally when I see that I immediately start looking for “any excuse” to get positioned.
Also you are looking for big sequences of bars in one direction with little pullback…think “the bus leaving empty”
And other things like
- Many bars with little or no overlap
- Microgaps (I cover this topic to death in my Price Action Masterclass)
- Pullbacks are very small, often limited to intrabar (again I cover this in the Price Action Masterclass)
Typically the first pullback comes much later than usual, meaning sideline traders who were waiting for a pullback are forced to chase the market… driving it further up.
So how to trade trend days?
Firstly, counter trend trades come OFF the table. Even ones that look great. All day you are going to see TEXTBOOK counter trend trades that fail, again and again. If you try and be a typical intraday scalper yanking and banking for mean reversion, then you are going to lose a lot of money by the end of the day.
Lemme show you what I mean… see how a textbook bottoming pattern doesn’t work on a trend day – the selling pressure is just too strong
The opposite is true as well… If you notice a trend day early you can get as many as 8 or 10 consecutive winning trades on the E mini futures on a 5 minute chart.
One well played trend day can make your whole month.
Here’s how you do it.
Conceptually you are looking for “any excuse” to get in. And you are trying to hold for nearly all of the day. And if your balls are big enough you can move stops to breakeven on the positions you have on, and keep pyramiding up. A couple of ways.
Of course the best way is to use the price action setups I cover in my Price Action Masterclass.
But here’s an alternate method that works very well…
Firstly you want to put a moving average on. My preference is for either a 13 period EMA or 20 period EMA.
Now these averages don’t have any predictive ability at all… and call bull every time you hear someone say something stupid like “price has to recapture the 50 SMA”… but I digress again.
Get it through your heads… moving averages are nothing but useful visual aids in system building, they have zero predictive ability… I’ll cover this in detail when I get some time… but let me stay on track.
So what you want is a pullback touching this EMA (exponential moving averages are better than simple for this).. preferably with some supporting price action setup.
That then breaks the LOW of that candle (for a short) the very next bar.
You then place a stop order to buy one tick above the high of the most recent candle…
6 out of 6 winning trades is entirely normal for a trend day. One good trend day can make your whole month.
If you don’t know what those are then what are you doing, trader? Just get the Price Action Masterclass right now and upgrade your brain matter.
So let’s recap the key points.
Early recognition is key
Look for early market internals being extremely one sided.
No counter trend trades
Establish a core position with a wide stop and add to it if you see additional setups
Pyramid if you have the testicular fortitude (or whatever the female equivalent is)
Buy any pullback (for a bull trend obviously)
I really hope you can get some use out of this… and if you are even vaguely contemplating trading trend days for real… you’d be FINGERPAINTING-IN-YOUR-OWN-POOP CRAZY not to buy the Price Action Masterclass
For about 1% of what you should make on a decent trend day you will have all the knowledge to trade these “manna from heaven” days.
I don’t want you to miss out. Click HERE!