Tuesday, May 13, 2014

Four Keys to an Upside Trend Day

For daytraders as well as swing traders, identifying a trend day early in its lifespan can be a profitable strategy.  Here are four things I look for in identifying upward trend days, such as we had on Monday:

1)  The cumulative NYSE TICK on the day stays positive and rising through the session;

2)  The percentage of NYSE stocks trading above their day's VWAP remains above 50% through the session (see chart above);

3)  The number of NYSE stocks making new daily session highs vs. fresh daily session lows remains positive throughout the session;

4)  Major indexes stay above their opening price ranges throughout the session;

Not all of these conditions will fire perfectly on each uptrending occasion, but most of them will.  Note that each of the conditions is measuring an initial thrust upward and then sustained buying pressure with consistent, positive breadth.  The key is recognizing these conditions relatively early in the trading session.  I obtain my data from my e-Signal feed and use historical research to identify the degree of thrust and buying pressure that is most likely to lead to a trending outcome.

Note that the failure to meet the above conditions can also serve as an alert to a potential range day.  Identifying likely day structure as early in the session as possible is a very helpful skill for traders on the day timeframe.

Further Reading:  Identifying Day Structure

Reminder:  9 AM EST Podcast With Michael Covel Today
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7 comments:

Joslin Lolo said...

Hi ...regarding podcast it not obvious on that site how I tune in?

Brett Steenbarger, Ph.D. said...

My apologies, Joslin; the podcast will be posted after being edited.

Joslin Lolo said...

Say I have a weekly or swing target eg: weekly pivot, are there readly available indicators from end of previous week or start of week data that point to a up, range or down week?

Brett Steenbarger, Ph.D. said...

Hi Joslin,

I run historical queries with breadth and other data for this purpose. Limited queries can be run on the IndexIndicators.com site.

Brett

May Zhen said...

Dr. Steenbarger, My question is simple: Do you sleep at all? It seems you reply to people at 3am.

Trader said...

I was thinking of how to apply these principles to a single stock. How about:

1) positive delta, indicating buying at the offer and up ticks
2) staying above its vwap and its opening highs
3) strength in other stocks in the same sector/industry, i.e. new highs
4) above average volume

What do you think Dr. Brett?

Brett Steenbarger, Ph.D. said...

Hi May,

I do sleep, but my cats make sure I'm going by 4 am! Good ideas, Trader, about applying trend filter to individual stocks. I'd look at relative volume as another candidate predictor--

Brett