What is a trend day? A trend day is a typical day when price moves in the same direction with strong trend starting from day’s open and closes strong in the direction of the trend. So suppose price starts upmove right from the beginning and closes almost at day’s high, it is a UP trend day. And suppose price starts down-move right from the beginning and closes almost at day’s low, it is a DOWN trend day. Now, how to identify trend days early so that you can trade in the right direction?
The major mistakes that traders make that they cant identify a trend day and short sell early on a UP trend day and goes long early in a DOWN trend day. So most of the times traders are caught on the wrong side of the market ultimately realizing how big an opportunity lost in a wrong trade.
So, how to identify trend days?
- Generally in a trend day price opens gap up of a gap down above an 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.
Once a trend day is identified how to enter in the trend day?
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 15 minutes. Divide this time into 3 parts. Note high / low of 9:15-11:15 and again note high / low of 11:15-01:15. Generally in a UP trend day high of 11:15-01:15 is greater than high of 9:15-11:15 and in a DOWN trend day the low of 11:15-01:15 is less than the low of 9:15-11:15.
Now in a UP trend day buy if the high of 11:15-01:15 breaks, your SL 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 SL will be the high of 11:15-01:15. Keep a realistic target for both the cases OR exit near to a market close. Check the image above and test the strategy. Your comments regarding the strategy “How To Identify Trend Days” will be highly welcome and will take this discussion further.
Indrajit is a professional blogger and trading system developer. Amibroker expert, WordPress expert, SEO expert and stock market analyst.Trading since 2002, he has started the journey of StockManiacs.net on 2008. He follows Indian and world stock markets closely.
Categories: Trading Strategy