Updated: May 25, 2020
Trend day´s are a great opportunity for day traders but personally I find them tougher than trading range days because I find it hard to get the ´right´ entry point. As a day trader / scalper, I am always focussed on executing at the ´best´ entry and if the horse has bolted so to speak, I find it hard to force myself to jump in on trend days as the risk reward is less clear to me than trading ranges. Sure, there are patterns such as flags, pennants and ´balance´ breaks which give you an opportunity to get in but I find them more difficult to trade than my standard day trading set ups.
This ´getting the best entry´ is not so much an issue for swing traders but scalping the intraday M5 and M1 charts necessitates such an approach in my book. While it might just be an idiosyncrasy of mine, whatever it is, I don´t fight the fact that I´m less comfortable with trend days. Give me a range anyday. It also helps that there are far more of them!
Consequently if I miss a trend day I don´t worry that I´ve missed it because I know that the odds of the next day being a range day are even higher than they normally are. The old trading adage of expansion leading to contraction is a good one to always have in your back pocket.
To exemplify this last week we had a Monday trend day in the Dax which for the most part left me on the side lines.
The chart above shows the day in question. We had been moving up during the overnight session and at the RTH open it just kept on going and by the RTH close we had registered another 380 points. Great if you were on board - a little disappointing if you weren't! There were a couple of opportunities to enter at the balance breaks at predetermined levels but they were not particularly great set ups for my style of trading.
The next day however. I knew the chances of a range day were much greater so I was ready to trade accordingly. Of course anything can happen and it could have turned out to be another trend up move (rare in my experience) or it could have reversed back down but the odds of sideways consolidation are always greater after such an expansive day. And that´s exactly what we got.
See chart below.
As ever I had my levels ready for the open; key HTF levels and overnight highs and lows together with inflection points from the previous day. Also my view of the probable context for the day was to get ranging price action so I was prepared in advance for how it might unfold.
After a sharp push higher to a HTF level in the hour prior to the RTH open (the initial balance), we opened with a push down to the overnight high prior to the IB, pulled back to the 61.8% Fib and then continued to push down.
The first pullback continuation entry at the Fib was a tell in my book that we were not at least initially going to push higher. Such pullbacks are always worth a shot as Dax is prone to pullback continuation opportunities at the open. This trade depending how you managed it had the potential for around 90 points if you closed at the low of the IB as per level to level scalp / intraday trading ´rules´.
For me it was then a question of watching price action and waiting for set ups at either an intraday inflection level or to trade the edges of the intraday range. Again in my experience of the Dax and because of the way I trade, I am always on the lookout for an intraday level(s) to act as an entry / exit level for day trades and scalps.
You can see the level that formed at 11050 provided a great opportunity for such scalps with the first opportunity to short when the level switched from Support to Resistance at A. If you are familiar with the Dax you´ll know that on range days this is typical price action. If you did not trade at A there was another possible scalp entry at B. The exit was clear - the Break Out level from yesterday, which also turned out to be a good long entry.
After that it became a fairly straightforward trading session basically scalping the range and particularly shorting the 11050 level. It could have broken at any time but the point is the risk reward is always good enough to trade these levels and as you can see you didn't need more that 15 point stops on any of the shorts in the RTH session.
Trading the long scalps back up to the 11050 was more about watching the pa once we traded down at the 2 predetermined levels. I will normally automatically trade them on a 1st test basis if they are key structural or higher time frame levels. Alternatively I´ll watch the pa and in particular look out for pin bars on the M5 or the M1 at the these levels which I find to be very useful in scalping the Dax.
In general once you have your levels marked up for the day you have to have the confidence to hit them with a long or short once they are reached. If you are scalping like me the chances of getting a reaction at these inflection points is always worth a trade as there is a good chance to take partials and if it fails to reach the exit level, to get out at BE. It matters less that they all win more that the majority do, so that over time you finish in the blue (or greenl).
So after missing out on the bulk of the priors days trend action I was ready and prepared for a more typical range day which depending on how you manage your trades had more than enough opportunity to match the points from the trend day. I don´t try to catch all these scalps on days like this but it pays handsomely to be ready for them.
Success is always a function of preparation and opportunity!