Identifying, Trading & Profiting From Up Trending Markets
First off, why is the trend our friend? The number one reason is intra day trending markets provide confidence for the day trading species. As a day trader we are always cautious of a trend reversal out of nowhere(i know i am), especially in our current choppy, unsure, seemingly erratic, bot controlled environment. These factors really screw with a day traders ability to hold a trade while taking heat. Todays morning session presented an early up trend reaching towards 1150 resistance before reversing. Keep this chart in front of you as you read on.
The chart above is an example of an up trending market(Chart is from March 9 and is a 5min)
Properly identifying a trending up market is just as important as understanding how you can profit from them.
Below is three simple yet proven steps to quickly identify a trending up day/trend:
1. Wait till the opening chop concludes, usually after the first half hour before moving on to 2 & 3.
2. In whatever index you focus on (i focus on the S&P) look for a pattern of new highs off the day low, followed by a pullback which catches support above the previous low. After a new higher low is made, the price must move back up through previous new highs, making new highs on the day(think stair step).
3. IF the pattern repeats about 3 times this should alert you the tape is strong and buyers are in control.
Based on my experience, once the up trend is identified you should look to get long names which are acting/standing out the most per volume and price action,* these names should also have a similar chart to the index(s). Key being not taking to much time identifying the trend, finding a stock and ultimately placing your entry on a pullback so as not to miss/chase the next stair up.
Now you are probably wondering about confidence. The trend you just identified should naturally instill confidence based on a predictable pattern. Being long a market based on a uptrend is said to be trading with the market “at your back”, psychology and physics is now the driver of the trend/freight train. In this highly ETF controlled/correlated market you can be confident the buy programs are going to be sending out bids across the strongest names pushing along your position thereby instilling the confidence you need to pull the most profits out of your trade before the trend reverses.
You win two ways; 1. You reduce your transaction costs associated with micromanaging a position(entering and exiting), 2. You increase your revenue on the trade by letting the trade run longer than if the market were not at your back. In order to be successful as a day trader your average profit per trade must be twice that of your losers. Success will never be reached if you do not have the confidence to hold a winning trade in a trending market. Granted an up trending market is just one of many confidence instilling scenarios a traders must place into the trade bank, though you gotta start somewhere.