As I indicated earlier this morning, due to the double-doji pattern, odds favored price expansion today, with the bias being to the downside. How could you have turned that bias into profits and traded the trend day?
Let’s take the S&P 500 as a proxy (you would use the SPY or the DIA … or perhaps the futures for trade execution):
The main point of a trend day is to “get the trade on early” and play for a larger target than normal. Because the bias was to expect a trend day, you should have been looking for early entry. During a true trend day, price opens at one extreme and closes at the other, so theoretically, any trade execution should yield a profit if held until the close. I like to manage intraday positions more aggressively (or conservatively, depending on your definition).
Nevertheless, a core trade is established when you feel the weight of the evidence is sufficient to establish the day as a trend day. I exit core trades when the price breaches the falling 50 day moving average on the 5-minute chart, or at the close of the day.
In this case, the core exit was taken around 2:30, which wound up being nothing more than a ’shake-out’ trade. The positive momentum divergence that formed for the duration of the day led me to believe that buyers may be stepping in intraday. This was not the case, but having the market close lower didn’t bother me because my rules dictate entry and exit.
There were a few key opportunities to ’scalp’ the price, or play for smaller targets with limited losses, being when price retraced back to its falling 20 period moving average. The stop goes above the falling 50 with the target being the most recent swing low. The market gave us at least three of these opportunities today. These give an opportunity to use limited leverage to play for a relatively high probability small target.
The positive momentum divergence built, but alas it turned out to be a false signal, as traders rushed for the exit into the close, unwilling to hold positions overnight.
Trading a trend day successfully can add quick profits with minimal effort to your trading account.