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QUICKLY DETERMINE THE TYPE OF DAILY MARKET ACTION (TREND vs RANGE)
I'm sharing the straightforward technique I use to get a good idea in the first 30min following the market open
For a typical swing trader like myself, my system performs way better when the market is trending, as this is with this type of general market action that the individual stocks tend to move the most and with more “predictable” moves.
At its core, the market has two states, either TREND or RANGE. So, in the past years, I’ve developed straightforward techniques to quickly assess the probability of one type of action over the other.
That’s what I’ll share with you in this article. Let’s go!
What is a TREND or RANGE market, here are two quick examples:
TREND market example:
RANGE market example:
QUICKLY DETERMINE THE TYPE OF DAILY ACTION (TREND vs. RANGE)
The first thing to consider first & foremost that could lead to a range/choppy day often comes from outside elements like:
Slower period (summer, etc.)
For example, the week before significant CPI reports & FOMC, you can expect a higher PROBABILITY of range days occurring in the days prior.
One technical analysis technique I found & use is that we usually know pretty quickly in the day that it will be a range or trend day.
At each market open, I draw a RANGE BOX with the two first 15-minute candles SWING HIGH/LOW of the day on the S&P 500 futures (ES_F) or SPY 0.00%↑ .
LET’S SEE WITH THE DEC. 7, 2022, EXAMPLE👇
Here is the futures action just before the market opens at 9:30 (EST)
The first 15min candle gives the first upswing to attach the TOP & BOTTOM levels of our RANGE box.
We usually see a countertrend move at the open, so I want to see and account for the second 15min candle.
The second 15min candle shows that the countertrend move and tick lower on the day, updating our LOWER level of the RANGE box.
Then, you can extend that box for the entire day's action.
Typically, we see tails above & below that box as we usually see false breakouts during the day, with slight overshoots. I don't update my box with those, I keep the original from the open.
Then what happens if we break that box 1 hour following the opening, Alex? If we do, I consider that the range is broken, and we MIGHT have a TREND market for the rest of the day.
That straightforward technique is not perfect, but it helps me stay on the right side of the market by adjusting my trading to different market environments. (It would be an excellent future article :))
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