If you’re new to the Indian stock market, you may find it challenging to identify trend days. There are days when the price of a particular stock moves in a certain direction for the majority of the trading day. Identifying trend days can be a useful tool for day traders to make informed trading decisions and maximize their profits. In this blog post, we’ll explore different methods to identify trend days and profit booking points.
What is a trend day?
A trend day is a typical day when the price moves in the same direction with a strong trend starting from the day’s opening and closing strong in the direction of the trend. So suppose the price starts up moves right from the beginning and closes almost at the day’s high, it is an up-trend day. Similarly, if the price starts down-move right from the beginning and closes almost at the day’s low, it is a down-trend day.
The major mistakes that traders make are that they can’t identify a trend day and short sell early on an up-trend day and goes long early on a down-trend day. So most of the time traders are caught on the wrong side of the market. They ultimately realize how big an opportunity is lost in a wrong trade.
How to Identify Trend Days?
Let us now discuss a few methods of identifying trend days.
How to Identify Trend Days on the Previous Day
Inside Bar NR7 in Daily Charts
Inside Bar, is a pattern in which the current day’s high is lower than the previous day’s highs, and the current day’s low is higher than the previous day’s lows. This day is also the narrowest range day for the last seven days (NR7). The Inside Bar, NR7 pattern indicates that the market is in a consolidation phase, and a significant move is likely to happen soon.
To identify Inside Bar NR7 in daily charts, look for a small inside bar lowest in the range of the previous six days. Interpretation of Inside Bar NR7 as a potential trend day is that the market will likely move in the direction of the breakout of the range.
Inside Camarilla Method
The Camarilla method is a set of support and resistance levels based on the previous day’s high, low, and closing prices. The Inside Camarilla method occurs when the next day’s Camarilla levels are within the range of the previous day’s Camarilla levels. This indicates a tight trading range and a potential trend day.
To identify the Inside Camarilla method for potential trend day, look for the next day’s Camarilla levels to be within the range of the previous day’s Camarilla levels. Interpretation of Inside Camarilla method as a potential trend day is that the market is likely to break out of the range.
Narrow Range CPR
Narrow Range CPR is a pattern in which the current day’s Central Pivot Range (CPR) is smaller than the previous few day’s CPR. Also, the current day’s closing price is closer to the high of the day. This pattern indicates that the market is in a consolidation phase, and a significant move is likely to happen soon.
To identify Narrow Range CPR in daily charts, you can use software like TradingView or AmiBroker. Interpretation of Narrow Range CPR as a potential trend day is that the market will likely move in the direction of the breakout of the range.
How to Identify a Trend Day After the Market Opens
- Generally on a trend day price opens a gap up or a gap down above important support of the resistance. So if this is the case wait for confirmation before the counter-trend trade.
- Generally in a trend day price trades away from the intraday (15-minute) 20 moving average in the first half of the day.
How to Trade on a Trend Day
Entering a Trade
There is a very easy method of trading a trend day. Suppose today is a trend day and you are seeing price trading away from the 20 moving average. Now our market opens at 9:15 and closes at 3:30, so it’s almost 6 hours and 15 minutes. Divide this time into 3 parts. Note the high/low of 9:15-11:15 and again note the high/low of 11:15-01:15. Generally on an up-trend day high of 11:15-01:15 is greater than the high of 9:15-11:15. Similarly, in a downtrend day the low of 11:15-01:15 is less than the low of 9:15-11:15.
Now in an up trend day but if the high of 11:15-01:15 breaks, your stop loss will be the low of 11:15-01:15. Similarly in a down trend day short sell if the low of 11:15-01:15 breaks, your stop loss will be the high of 11:15-01:15. Keep a realistic target as discussed below for both the cases or exit near to a market close.
Profit Booking Point
A profit booking point is a level at which a trader books their profit. The levels of virgin POC, pivot resistance levels, or Camarilla levels can be used as profit booking points. Traders can set their profit booking targets at these levels and exit the trade when the price reaches them.
Virgin POC
Virgin POC (Point of Control) is a price level where the maximum volume of trades took place during a particular time frame, usually a day. If the market breaks above or below the Virgin POC level, it can indicate a potential trend day. Generally, a POC is virgin which is not tested in a few days
To identify Virgin POC, use technical analysis software. The interpretation of Virgin POC as a potential profit booking point is that the market may experience a price reversal or consolidation around the Virgin POC level.
Pivot Resistance or Support Levels
Pivot Support or Resistance levels are price levels that act as support or resistance to price movements. The high, low, and closing prices from the day before are used to figure out these levels. Pivot resistance levels can be used as profit-booking points when the market is trending.
To identify pivot resistance levels, use technical analysis software. Interpretation of pivot resistance levels as a potential profit booking point is that the market may face selling pressure around these levels. This can lead to a price reversal or consolidation.
Camarilla Levels
The Camarilla levels are a set of support and resistance levels based on the previous day’s high, low, and closing prices. Camarilla levels can be used as profit booking points when the market is trending.
To identify the Camarilla levels, use technical analysis software. Interpretation of Camarilla levels as a potential profit booking point is that the market may face buying or selling pressure around these levels, leading to a price reversal or consolidation.
FAQ
A trend day is a day in the stock market when the price of a particular stock moves in a certain direction for the majority of the trading day. It can be either an uptrend day, where the price of the stock moves upward, or a downtrend day, where the price of the stock moves downward.
To trade a trend day, a trader needs to identify the trend direction first. Once identified, traders can either buy or sell the stock based on the trend direction. It is recommended to use technical indicators like Moving Average or Bollinger Bands to confirm the trend direction before placing trades.
Trend days are days when the stock market experiences a significant move in a certain direction. The move can be either an upward trend or a downward trend/ Also, it can last for the majority of the trading day. We can identify trend days can by using technical analysis tools like Pivot points, Camarilla levels, or Narrow Range CPR.
To find trend days early, traders can use technical analysis tools like the Inside Bar NR7 pattern, the Inside Camarilla method, or the Narrow Range CPR pattern. These patterns indicate a consolidation phase in the market and a significant move is likely to happen soon. We can also use Pivot points and Camarilla levels to identify potential trend days after the market opens. It is recommended to use these tools in conjunction with other technical indicators to confirm the trend direction before placing trades.
Conclusion
Identifying trend days and profit booking points can be a useful tool for day traders to make informed trading decisions and maximize their profits. By using technical analysis tools such as Inside Bar NR7, Camarilla method, and Narrow Range CPR, traders can identify potential trend days. They can also use technical analysis software to identify pivot points, pivot resistance levels, and Camarilla levels as potential profit booking points.
But it’s crucial to remember that technical analysis is not a flawless method. Hence, we should utilize it along with other analysis methods like fundamental analysis and market sentiment analysis. It is also essential to have a well-defined trading plan and risk management strategy in place to minimize losses and maximize profits.
In conclusion, with the right knowledge and tools, even newcomers to the Indian stock market can make profitable trades by identifying trend days and profit booking points.
