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