Articles
Capturing Trend Days
by Linda Bradford Raschke - Dec 24, 2004
7.7 (from 57 ratings)
Conditions Preceding a Trend DaySeveral key price patterns can serve as alerts to the potential for significant range expansion:
Fading extreme tick readings can be dangerous - On a trend day, a countertrend strategy of fading extreme tick readings could result in substantial losses.
Ave. True Range highlights range contraction/expansion - The 3-Day Average True Range Indicator highlights how cyclical the phenomenon of range contraction/range expansion is. Volatility tends to be more cyclical than price.
- NR7 -- the narrowest range of the last 7 days (Toby Crabel introduced this term in his classic book, Day Trading With Short-term Price Patterns and Opening-range Breakout);
- A cluster of 2 or 3 small daily ranges;
- The point of a wedge-type pattern (which usually exhibits contracting daily ranges);
- A Hook Day (wherein the open is above/below the previous day's high/low -- and then the price reverses direction; the range must also be narrower than the previous day's range; leads traders to believe that a trend reversal has occurred, whereas the market has instead only formed a small consolidation or intraday continuation pattern);
- Low volatility readings, based on such statistical measures as standard deviations or historical volatility ratios or indexes;
- Large opening gaps (caused by a large imbalance between buyers and sellers);
- Runaway momentum (markets with no resistance above in an uptrend or no support below in a downtrend. This condition differs from the above setups in that volatility has already expanded. In a momentum market, however, the huge imbalance between buyers and sellers continues to expand the trading range!)
Fading extreme tick readings can be dangerous - On a trend day, a countertrend strategy of fading extreme tick readings could result in substantial losses.
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Ave. True Range highlights range contraction/expansion - The 3-Day Average True Range Indicator highlights how cyclical the phenomenon of range contraction/range expansion is. Volatility tends to be more cyclical than price.
Author
Linda Bradford Raschke
Linda is a well known US trader and educator who featured in the 'New Market Wizards' and is the co-author of 'Street Smarts'. She is president of LBR Group plc, which provides money management and...Linda Bradford Raschke has written 2 articles and 1 book for Trade2Win with an average member rating of 8.2 (from 135 ratings)
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