Thursday, January 13, 2011

Trending or range day

The biggest question every intraday trader must have in the morning is what kind of the day market will present.

If market is trending during the day one could use moving averages and if market is stuck in the range one could use support/resistance trading paired with Stochastic oscillator. Problem is to know well in advance what is going to happen on that particular day. Obviously, nobody has crystal ball to tell us around 8:30am what is going to happen later in the session.

As an example let’s take a look on yesterday’s trading day and let’s see if we can spot anything that can tell us what to do?

First picture is screen shot from the first part of the day from open till around 13:00. As we can see market started slightly lower than it closed on Tuesday, ran up to drop for few bars and around 9:20 it broke opening range. This should be your entry to long, especially because we had very strong Tuesday and continuation is more probable than change of the trend.

After this break ALSI was running on 10 ema (green line) until around 12:00 when it closed below 10 ema for the first time. We were entering quiet period of the day in that stage (from 12:00 to 15:00), so you could assume that trend is running out of steam. Second warning signal should be close below 20ema (red line) and there about one should have closed long for potential profit of about 170 points.

So, now let’s see second part of the day from around 13:00 till end of trading day.
As you can see on this chart market was stuck in the range from 28120 to about 28220 for the rest of the day, not counting last surge after cash market closed.

As we can see on that chart, it is obvious that market was bouncing around 10 and 20ema. In this case one can use one of two options: One is to determine range border and wait for any of them to be broken, or to short top side of the range and go long bottom side of the range. Also, maybe the best option for me was to take rest of the day off because you made enough that morning.

So, trending day or range day?

If market is closing above and below important moving average (10 exponential and 20 exponential), where those two moving averages are close to each other and crossing each other all the time then one should use techniques to trade range.

If market is riding one of important moving averages, then it is time to sit and relax and enjoy your ride. In this case don’t be tempted to take 50 or 100 points profit because days like this can easily turn into 200-300 points day. Close your trade only when there is reason to close it, not because you made “enough” points.

Trade with trend!


Anonymous said...

Excellent post!

Thank you

Alsi Trader said...

You are welcome

4abe said...

Is this the 5 min time frame and which streaming provider are you using?

Alsi Trader said...

Yes it is 5 minutes time frame.

Data provider is Hisat,software is Metastock

ALSI77 said...

Tx for the post. Many times I totally miss a trending day in 'fear' of a reversal or I sell out too early for the same reason.

I now know what setups to look out for.

Simple enough to implement.


Alsi Trader said...

You are more then welcome ALSI77

ALSI77 said...

Hi Alsi Trader,

I thought today (19Jan) was a good day to implement your trending trade strategy, but on the short side.

So went short at 29370 and looked to exit only if the 5min candle closed above the 10 ema, like you said signalling a 1st warning.

I was in the position all the way down to support at 29150 where I exited around as I thought the market would bounce off that level. Not more than 20 mins later the market rallied a bit and gave me the exit signal.

So very happy that I've learnt something valuable from you, and sticking with a good trade!!!

Thanks again.

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