Classic trend day

"In bear markets, stocks open strong and close weak.
In bull markets, stocks open weak and close strong."


When the market opens close to the low, runs down and reverses near the low, its usually a good indication for a possible bull trend move. The safest entry is at the first pullback and you should be able to hold on to it till the end of the day or trend termination.


Sometimes horizontal TTRs will set in that almost always break in the direction of the prior trend. The best way to get in this move is on a breakout pullback like b51 today. A horizontal TTR is usually a shallow pullback on a higher timeframe chart. One way to save your self being chopped up is to look at a 30m chart and take an entry there. For example, today's move was a shallow A2 pullback on the 30m chart.


Nevertheless, if you only moved your stop below every two legged higher low, you could have held the swing portion of the trade till close.

Late trends

When trends breakout late in the day after an entire day of horizontal movement (as opposed to a late continuation or reversal move),  they tend to go on till the end of day without any break or reversal. This is because scale in traders will not trade counter-trend since there is insufficient time to make scale in plays. This results in a sharp rally or sell off that you should hold till the close.

The early move from open to HOD was weak with overlapping bars and was essentially a test of yesterday's high. Once it failed, the price dropped to test the low of the trading range. A breakout below the LOD at b26 was sustained for two more bars, which is a good sign that a BP trade would set up and it developed at b46.

A DP trade, which by its nature is a higher probability trade developed at b63 followed by an A2 at b72,73. Note that every decent short signal since b16 has been successful, so the A2 was certainly a swing candidate.

Even if you missed all these, b74, a short shaved trend bar just below the ema is a fairly good entry bar and could be shorted on its own merit.

Breakout pullbacks as trend generators

When a move ends in a TTR, the right thing to do is to exit your position, say near bar 20 or so and wait for more price action. Yesterday we had nearly similar price action with a pullback to ema followed by a rally that ended in an up-sloping TTR.

The TTR broke down to test the low of the channel and whereas yesterday it failed and moved to the top of the channel, today it succeeded as a breakout pullback. There were two clues to read this correctly. Two attempts to fail the breakout did not go anywhere (b44 and b47). This resulted in a breakout pullback trade that should give at least two legs down. The A2 pullback to b70 meant at least two more legs down that ended in bar 78.

Compare this to the price action yesterday at b42 and b53. The price couldn't even close below the BO point. The follow through on the second attempt was decent enough (no pullback below previous bar for many bars, multiple closes above ema, break above swing high) that the second attempt to fail the breakout was successful enough to warrant a test of the other end of the trading range.

TTRs are trading ranges

Trends can terminate into a TTR after a strong move when there is no real overshoot. The TTR could be flat, with trend like today or opposite to the trend. Either way, when a trend terminates in a TTR, you should exit at the next with-trend push and wait for a breakout pattern to emerge.

When a trend terminates rather than just reversing, it has turned into a trading range and will attempt to breakout of the trading range. A rising trend will test the bottom (b42 and b53) while a falling trend would test the top of the range. A successful break of the trend bottom may give a BP entry in the direction of the breakout. A failure will cause the price to test the other end of the TTR and breakout possibly giving a BP entry (b68)

If the TTR range is large enough, you can buy near the low of the range and sell near the top until you get a successful breakout.

Flat TTRs on the other hand almost always breakout in the direction of the previous trend. This is because they are ii or iii flags on larger timeframes. Another reason is a possible absence of counter-trend strength in a horizontal move.

The swing view

One of the reasons A2 is my favorite entry is that if you can get one relatively early on a trend day, you can choose to ride it till it stops you out by taking out a previous swing low. For example, if you entered above b34 today, you could move the stop every new swing low and you would finally be taken out at b78. On days when the A2 does not turn into a trend day, this may mean a loss of a point or two but on trend days you could take in 8 points or more.

For example, in our chart today, its quite OK to miss all the turns and bends before the A2 at b34 if you have the patience to ride it to the end. This is why mastering A2 is far more important than getting the first reversal and pullback right.

First pullbacks however, are crucial on large gap open days and possible hard trend moves. This is because the move after the 1PB could be most of the move of the day. When a 1st pullback signal bar is weak such as b6 today, chances are it won't be a runaway trend so its ok to skip it.

If you want to be a with trend trader, a good option is to wait for A2 for the first trade of the day. If there is no A2, chances are the day will not trend and its ok to sit out rather than get chopped by tiny moves.

Small range days

Small range days are extremely choppy and usually higher risk since every trade needs to be a scalp. Price action will be hard to read and bars will usually look terrible. In general I avoid trading these days and often take no trades. You need to be an excellent scalper with a high percentage of success to trade these days.

Bars that had a small range the previous day and open with no gap or tiny gap (less than one bar) are candidates for small range days. If the first few two legged moves do not go too far and are made of overlapping bars, there is a good chance it will be small range day.

On days like this, do not expect any move to go much beyond the previous swing point. Counter-trend trades are extremely unproductive since the price is unlikely to move beyond a couple of points off your entry.

TTR trend terminations

Trends can terminate into a TTR after a large move up and this includes large gaps. A TTR that slopes up after a pullback will often make a double top or nominal HH or LH. If on the other hand a TTR slopes down from the high of the day, then it may make a two legged or three legged move near the high of the day and then move down.

BW early in the day as we saw near b6 is often an early sign of TTRs and soft trends and one should take trades very carefully. Once the TTR has terminated the trend, the next move is to wait for a trend breakout such as expanding triangles or DP. Any two legged move can be traded if the range is large enough. Today the range was barely 5 or six points so you would risk about 2 points to essentially make 2 points or less. Normally, its best to avoid trading at this point.

A huge gap up day that does not go anywhere is often a consolidation and a gap on the next day is likely to  extend the gap and turn into a trend day.