Wednesday, January 19, 2011

Tight Trading Ranges on Hard trend days

Two boxes in the  Trend transition matrix are labeled TTR. Since TTRs are full of failed trades but often lead to strong breakouts, detecting and correctly trading TTRs is very important to your trading success. One of the common types of TTRs are found on a hard trend day such as today. Usually, after such a hard move of 10 points or so, the market moves horizontally in a TTR and is essentially a very weak pullback.

The move from b16 to b35 is a down to horizontal transition and is a TTR. Except the short below b19, every single price action entry failed. This is a very important example of why you need to stay out of a TTR. The only single kind of trade you can take is a breakout after a failed breakout on another side. b28 broke above the previous swing high of b19 and failed giving an A2 short below b36. Even if you could not read the A2 correctly, the fact that the market gave a shaved trend bar at the ema after a failed breakout is sufficient reason to go short.

Detecting and exiting on a TTR: Although today the TTR was of short duration, sometimes the TTR can last till the end of the day or at least till the last 90 minutes. Exiting when you detect the TTR is the right approach and here is how I do it. If a hard trend day suddenly produces tiny bars and dojis such as b17 and b18, I will worry a TTR is forming and exit on the next bear bar or near the previous swing low. Then I will wait for a failed breakout and assume we are are breaking out in the opposite direction especially if the failure would break with trend (most TTRs are w/trend flags). Occasionally TTRs will give a double bottom pullback and reverse up and I will usually take that trade only if the other side of the TTR is at least one 6 ticks away.

Today's Summary

strong trend gives very few successful counter-trend trades while a hard trend has legs that move many points. This usually means a hard trend can give a windfall if you swing it yet it can erase all the winnings if it does reverse. My approach is to take some or all off whenever I expect the market to go into a tight trading range and re-enter on the next signal. Traders who trade large number of contracts can simply keep taking profit at every swing extreme or preset targets of +2, +4, +8 etc.

The first bar today was a doji with a 1t body but its entry bar was a strong bear bar. A gap day with such a strong entry bar is sufficient cause to short below it. Cautious traders could enter below the first pullback at b9. The actual entry is below b8, which happens to be the entry bar of the b7 longs and will likely cause a selloff. This is also a failed H1 trade (fH1) that should give a measured move of just under 5 points. 

The TTR fBO trade described above is also a very obvious trade once you are able to read it correctly.

b41 was a possible W reversal but there were plenty of signs that the signal was bad. b43 was an outside up bar that never triggered. The db bar b43 was a doji, which like the outside bar was a trading range type of bar. You did ok if you bought above any of these but its doubtful it would reverse hard. There was no W1P and therefore the Gap bar at b50 was a good short and could be held till a new LOD.


  1. Cad, I, along with some other people, are confused with the term 'hard trend'. How can you describe it, and how is it different from a 'strong trend'? Thanks.

  2. "The actual entry is below b8, which happens to be the entry bar of the b7 longs and will likely cause a sell off."
    Hi Cad, why is the actual entry below b8 and not b9? Because of the shape of b9?

  3. TD, inside bar entries are below the breakout of the containing outside bar. When the inside bar is large or is a small bar at the end of a large bar or shaved, you can enter below the inside bar itself.