Another Powerful Trend Day Befalls Us

May 4, 2009: 5:30 PM CST

To say I was impressed with the bullish action today is an understatement – I was astonished at the strength!  Let’s look inside today’s intraday action to see how the Trend Day structure developed and what opportunities existed for profit – knowing how to trade a trend day can make the difference in a large loss or large profit the next day we get one.

SPY 5-min chart:

I consider this a “Type 3″ Trend day which is the most powerful of all – price barely retraced any ground under the 20 EMA, and we had a picture-perfect (textbook) example of what you would expect on a Trend Day:

Overnight (weekend) Upward Gap
No effort whatsoever to fill it
New TICK and Breadth (Market Internals) Highs early
Bullish EMA Structure
Price ‘hugging’ (supporting) on the rising 20 EMA all day

The TICK also hovered in a range between 1,000 and -600.  There’s usually a 1,500 or so point range in the TICK on a given day which is often skewed in one direction.  That skew helps set up confirmation/non-confirmation principles along with absolute TICK (and Breadth) readings.

Without getting too deep – trying to keep it simple – the best opportunities came in each time price tested the rising 20 EMA, with a stop placed (and/or trailed) just underneath the rising 50 EMA.  There really isn’t any need for brilliance in analysis on trend days – the imbalance in supply and demand is so pronounced, and the price pressure (current) is so strong, that you can even have sloppy execution skills and still wind up with numerous profitable trades… provided you do not try to fade the price in a Trend Day.

Perhaps the worst mistake one can make is trying to finesse short-sale trades on an Up-Trend Day (or vice versa).  Do not “play cute” – play smart.  Avoid counter-trend trades and look to enter an aggressive buy scalp trade when price pulls back to the 20 EMA or the TICK hits its lower boundary of support (which, today, was around the -500 to -600 level – not shown).

Trend Days can help you meet your weekly – and sometimes monthly – monetary goals quickly and easily.

For more information on how to Trade Trend Days, see my compilation post “21 Posts on How to Trade Trend Days” which includes 9 free ‘lesson’ posts and 12 ‘example’ posts just like today’s summary.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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10 Comments

10 Responses to “Another Powerful Trend Day Befalls Us”

  1. Gawed Says:

    Dude, congrats on having Disqus on the comments, it's a great tool :)

    i declare myself guilty of trying to use indicators today, but it was based on the reversal day we had last week were the indicators clearly showed a round reversal thru a divergence. i guess i still have difficulty identifying trend days but… what would be the differences between that day with a reversal and this day?. just the facts you posted? do you have more posts about how to id trend days early on? ;) have to reread you and learn again! damn

  2. Dominick Says:

    Hello Corey. Great post as always. Can you fill us in on type 1 & 2 trend days and maybe explain the differences? Thanks.

  3. meques Says:

    today except symmetrical triangle break out nice trade opportunity was also cool bullish divergence when SP came back to broken symmetrical triangle. Divergence was with rsi14, stoch lines, 3-10 oscillator and etc. the main that i like here was a very strong nyse tick cumm. spike – spike at more that 1100 – new high for the session in the moment of divergence forming.

  4. Corey Rosenbloom, CMT Says:

    Dominick,

    A brief description:

    Type 1 is a Failed Trend day
    Type 2 is a 'almost perfect' TD but perhaps we broke EMA support or gapped in the wrong direction
    Type 3 is the 'perfect' trend day like this.

  5. Corey Rosenbloom, CMT Says:

    Thanks Gawed!

    I'm still figuring out all the neat upgrades, and Disqus is amazing so far.

    Unfortunately, you can't always predict whether the day will be a Rounded Reversal (trend day failure) or actual trend day. Market Internals and relationship to EMAs give you clues but never certainties. You just manage risk accordingly.

  6. Corey Rosenbloom, CMT Says:

    Meques,

    Good call and comments. New TICK highs like you showed can be 'signs of strength' which hint that the structure is changing and to be aware.

    Divergences and momentum readings (new highs/lows) can be powerful forecasters of the likely move ahead and give excellent trading opportunities.

  7. meques Says:

    today except symmetrical triangle break out nice trade opportunity was also cool bullish divergence when SP came back to broken symmetrical triangle. Divergence was with rsi14, stoch lines, 3-10 oscillator and etc. the main that i like here was a very strong nyse tick cumm. spike – spike at more that 1100 – new high for the session in the moment of divergence forming.

  8. Corey Rosenbloom, CMT Says:

    Dominick,

    A brief description:

    Type 1 is a Failed Trend day
    Type 2 is a 'almost perfect' TD but perhaps we broke EMA support or gapped in the wrong direction
    Type 3 is the 'perfect' trend day like this.

  9. Corey Rosenbloom, CMT Says:

    Thanks Gawed!

    I'm still figuring out all the neat upgrades, and Disqus is amazing so far.

    Unfortunately, you can't always predict whether the day will be a Rounded Reversal (trend day failure) or actual trend day. Market Internals and relationship to EMAs give you clues but never certainties. You just manage risk accordingly.

  10. Corey Rosenbloom, CMT Says:

    Meques,

    Good call and comments. New TICK highs like you showed can be 'signs of strength' which hint that the structure is changing and to be aware.

    Divergences and momentum readings (new highs/lows) can be powerful forecasters of the likely move ahead and give excellent trading opportunities.