In this article, I am going to discuss How to Day Trade with Trend in detail. Please read our previous article where we discussed How to Trade with Supply and Demand Zone. As part of this article, we are going to discuss the following pointers.
- Why trend analyze required for day trading
- Structure of the market in details
- How to trade with uptrend and downtrend and sideways market
- Characteristics of each trend
- How to analyze each trend
- When does trend end
I WOULD SUGGEST GO THROUGH THE Price Action Analysis article BEFORE GOING FORWARD.
Why Trend Analysis for Day Trading?
Trading against the trend, without a trend, or poor quality trends are one of the most common reasons for trade fail. Quality or strong trends have more predictable success (edge).
The controlled arrangement of price bars and pullbacks provide greater certainty that reverses at supply and demand happen. Poor or weak trends have lower predictability
Uncontrolled arrangement of price bars and pullbacks into supply and demand lessens chances of a reversal
STRUCTURE OF MARKET OF MARKET
The price goes through 4 Phases
- ACCUMULATION (sideways market)
- UPTREND(trending up)
- DISTRIBUTION (sideways market)
- DOWNTREND (trending down)
ACCUMULATION (SIDEWAYS MARKET)
Smart money is removed from the floating supply of stock by buying, this process is called accumulation. The accumulation phase looks like a range market after an extended downtrend.
A market is in a range when trading between Support and Resistance. Price Stuck between Resistance and Support. Not move any direction.
Generally in the accumulation stage, we will see
- Normal or narrow range candle
- Both mix of the green and red candle
- Low volume
- Take more time
- Price in a tight range
As time goes by, stops will gradually build up beyond the range as traders long near the lows and short near the highs of the range.
No guarantee that the market will reverse from here. But it should alert you to the possibility that the bears are getting weak and the bulls could take control and push the price higher above the highs of the range
How to enter from the accumulation
3 TYPES ENTRY FROM ACCUMULATION
- Spring entry
- Break out entry
- Break out pullback(flat or test ) entry
If the lows of the range coincide with Support on the higher timeframe, it greatly increases the odds of the market breaking out higher. Let me explain you, the big picture is bullish but the lower time frame has down trend .lower time frame trend stop at higher timeframe resistance
Let me explain to you
UPDATED DAILY CHART
This means you wait for the price to come to an area of Support on the daily timeframe — and then look for the break of accumulation on your trading timeframe
Smart money aggressively moving price up. The advancing phase is essentially an uptrend with price making higher highs and lows. Market move in up and downswing
In a healthy bull trend, the upswing generally exceed the downswing in length and making a higher high and higher low, the reverse is true for the bear market
Price Make Higher High (HH) and Higher Low (HL)
Generally in the advancing stage:
- There’s more bullish than bearish candles
- The bullish candles are larger than the bearish candles
- Volume increases on the upswing and decreases on the downswing
Bullish bar close on opposite extreme or at near high
Now… the advancing stage eventually will need to “take a break” because the early buyers will start taking profits and sellers will look to short the markets as prices are at attractive levels.
Different types of trends.
- Strong trend
- Healthy trend
- Weak trend
- In a strong uptrend, the buyers are in control with little selling pressure.
- You can expect this trend to have shallow pullbacks (flat sideways)with low volume
- Barely retracing beyond the 20 EMA.
- Bullish wide range bar is more than bearish
This makes it difficult to enter on a pullback because the market hardly retraces and then continues trading higher. The best way to trade this trend is on a breakout
In a healthy uptrend, the buyers are still in control with the presence of selling pressure (possibly due to traders taking profits, or traders looking to take counter-trend setups).
You can expect this trend to have a decent retracement usually towards the 20EMA, which provides an opportunity entry with the trend. Low volume pullback with narrow range or lower wick candle
Weak uptrend/choppy trend
- In a weak uptrend, both buyers and sellers are almost equal control, with the buyers having a slight advantage.
- You can expect the market to have steep pullbacks and trades beyond the 20EMA.
- Generally choppy price action
- The market breaks out of the highs only to retrace back much lower (which makes it prone to false breakout). Pullbacks often breakthrough areas of minor demand (uptrend) or minor supply (downtrend)
- Majority of open prices will be into 50% or more of the prior bar range
- Close may not move in direction of the previous bar
- New bar open and close not near extremes, meaning tails
- Display uncertainty
The best way to enter this trend is at Support or Resistance.
Tick by Tick: Secrets to Day Trading Success Class 2: Technical Analysis
SM will take advantage of the higher prices obtained in the rally to take profits by beginning to sell the stock back to the uninformed traders/investors
ALL THE INFORMATION PROVIDED ABOVE ARE REVERSE FOR DISTRIBUTION AND DECLINE PHASE
Price makes Lower High (LH) and Lower Low. (LL)
When does a trend end?
An uptrend is officially over when the stock has put in two lower highs and two lower lows in a particular time frame. A downtrend is officially over when the stock has put in two higher lows and two higher highs in a particular time frame.