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For anyone who didn't manage to make it to the lecture this evening or wishes to read through it at their leisure. Here is the full transcript:
Good Evening all, & Mooms welcomes you to his trading Lecture Extravaganza.
I very much hope you enjoyed the last lecture & have been putting it to good use.
So lets start with definitions so we all know what we are dealing with. Simply, a trend day occurs when there is an expansion of the daily range in the overall market, a stock or an index and the open and close are near opposite extremes.
Trend days will occur in individual stocks every day. They will occur in the overall market between 3 and 7 times a month.
It’s critical that you as a trader are able to identify when a trend day is in place, and when one is likely for a few reasons. The first, and most obvious, is that they are very easy days to make a profit.
Many of the traders I know will make 80% of their money on these few days a month.
The next reason, which may not be so obvious, is that you don’t want to jump in front of a speeding freight train. It’s no fun to be going short on a trend day up, or long on a trend day down. On a trend day up you don’t want to short strength, and on a trend day down the last thing you want to do is buy weakness. It’s a sure way to end your trading career.
Conditions which often proceed a trend day.
Its important to watch the market for a few key items as they can clue you
in that trend day MIGHT be around the corner. These are all things a trader
can find at night, when the market is closed, and will allow you to have a
game plan in place for a possible trend day.
The most common thing that will occur before a trend day is range
contraction. Range contraction means the market will be in a low volatility
situation. The market fluctuates between periods of rest and movement. In
general, after a period of contraction an expansion will follow as the
market seeks to get back to its average volatility.
Look for NR7 Trading days. Briefly, this is a day in which the range is the
narrowest of the last seven or a cluster of 2 or 3 small daily ranges.
http://ftp.solarsite.co.uk/mooms01.gif
Double click the link above to show a NR7 Day.
This day it only traded within a 70 point range, so the next day we can expect a trending day. As you can see from the chart it trended strongly down as the NR7 was a consolidation.
Everyone ok so far
The above two methods should be used as you look though your end of day charts.
Once identified they should be on your screen the next day ready to trade the breakout or breakdown when it explodes in one direction.
Also there is the Marabozu reversal. This occurs when the prior day was a wide range day, possibly even a trend day, in which the market opened at or near its high/low and closed at or near its low/high.
Traders get caught going one way and when this reverses, panic type moves can occur. In this case you will look for trades above the prior days close, as well as above the prior days high (A trap, 90% of the time this will lead to a trend day, or at the very least a "Trend Morning")
Runaway Markets. This is a market that has no resistance overhead in an up trend or no support in a downtrend. Buying or selling panic will take place and the imbalance of buyers or sellers will keep on expanding the range.
A market approaching critical levels. This can be something like a 20 day high or low, a new high or low or the break of an important technical point. Usually these trend days will happen in the direction you think they will
because the herd kicks into gear and pushes things that way.
These are the kind of trend days that many TRADERS get killed on. Because they see the dummies and want to give them what they want. Which is 99% of the time exactly what you want to do. But, not always in these cases. In a few minutes I will be going over things you will see intra day that may key you in that its this
kind of trend day.
Ok, so the above are the conditions you can find the night before. One of these will be found in most cases before a trend day. I’ve never done exact research to say it happens X% of the time that you see one of these before a trend day, but Id say its at least 2/3 of the time.
Now, the next thing I will cover is, what will you see during the day to know it’s a trend day, or has a very high likelihood of being one. It’s always easy to look at the charts come 3:00pm and say "Yep, that was a trend day".
But, what can you do at 8:30 or 9:00am to say, "We are very likely to have a trend day here" and then adjust your trading accordingly.
First is obviously the criteria listed above. One of these will be seen before the trend day and key you in that its possibly, then when you see some of the stuff I’m about to list you can say, ok its beyond possible, its very likely.
A gap. The bigger the better. This will apply to a stock or an index. Now, a gap doesn’t tell you what way the trend day will be, but it tells you that its very likely when it occurs after any of the above criteria. Watch for the break of the first 60 minutes trading range.
Once that range is broken, 70% of the time that will be the direction for the rest of the day. Large gaps lead to trend days because one side of the market is trapped and they have to get out.
Whenever traders "have" to do something, crazy things happen. Trend day up is triggered as stops are hit, or a trend day down is triggered as the stops are hit from open trades.
High volume. Most trend days have high volume. If the volume is not heavy, you may have a "trend morning" but then a reversal in the afternoon. The trend days occur when one side of the market is very excited or trapped.
Volume will show you exactly how excited or trapped they are, and obviously if the volume is low, the greed or fear levels are also relatively low compared to what wed want to see.
Extreme TRIN readings and a strong TREND in the TRIN. The TRIN is also knows as the ARMS Index after its creator, Dick Arms. It is composed as follows: Advancing Issues/ Declining Issues * Up Volume/Down Volume. Normally the TRIN will fluctuate between .8 and 1.2. On a trend day up, you will see the TRIN low all day and trending lower.
This shows you no selling is coming in. It shows you net buyers. Of all the indicators I watch, TRIN is the most
important to me. I hate trading when the TRIN data is screwed up...happens about 1 or 2 times a month.
Next is the TICK, which is the next indicator I look at. This represents stocks trading on an up tick vs. a downtick on the last trade. I want to see a trending TICK and also some big moves in the TICKS showing institutional
activity. For a trend day UP, I want to see pullbacks in the TICKS leading to general buying.
Watch a trend day over noon, because this is when it often gives things up, and you end up with only a trend morning. If volume is light, the TICKS are bad or the TRIN isn’t good. Cancel all bets over noon. Its going to flip
close to 75%of the time.
A trend day is defined more or less by extremes. Extreme open, Extreme TICKS and TRIN. Extreme Volume. All of this of course adds up to extreme emotions on the part of traders.
Ok, last part then Ill take a few questions.
How do you capitalize on knowing we are likely to have a trend day? You had an NR7 day yesterday following a narrow range the day before. Today the market gaps up above yesterday and the prior days high. The TICKS are good, The TRIN is good and volume is zooming.
The easiest trade to take when you see the criteria start to shape up for a trend day is to go ahead and buy the breakout of the first hours range. Most of the time this is going to work. You buy that and simply hold it until the
end of the day or the criteria starts to change and you see that the extremes in the market are working off.
When that 60minute high is taken out, buy it with a stop and reverse set under the 60 minute low. That’s the
simplest way to play it. Keep the trailing stops under your pivots, call your significant other and tell them you are going on fancy date tonight and that’s that.
If you miss the first entry of the day, or wish to add knowing we have a trend day. Your best bet is going to be to play the Bull/Bear flags and the breakout and continuation patterns. One a trend day there may be very few of
these, maybe 1 to 3 good ones. You can also buy the stronger stocks on TICK pullbacks.
On trend days, because A) the volatility is going to be high and B) the potential is high you need to make a few adjustments with stops...Namely loosen them up. Stops should be trailed slightly under the last pivot lows
as the market continues your way. But keep them a bit looser than you normally would. The reason for this is that on a trend day, there is a tendency for a huge percentage of the days gain to come in after the bonds
close in the last hour of the day.
This is when the institutions, seeing that things have held up well will come in and give a big surge. This big
push they provide then forces more covering, which accelerates the movement and so on and so forth. When you get the 3 to 7 seven TRUE trend days every month.
YOU MOST DEFINITLY WANT TO BE POSITIONED IN THE LAST HOUR OF THE
DAY! IT CAN MAKE YOUR MONTH.
Good Evening all, & Mooms welcomes you to his trading Lecture Extravaganza.
I very much hope you enjoyed the last lecture & have been putting it to good use.
So lets start with definitions so we all know what we are dealing with. Simply, a trend day occurs when there is an expansion of the daily range in the overall market, a stock or an index and the open and close are near opposite extremes.
Trend days will occur in individual stocks every day. They will occur in the overall market between 3 and 7 times a month.
It’s critical that you as a trader are able to identify when a trend day is in place, and when one is likely for a few reasons. The first, and most obvious, is that they are very easy days to make a profit.
Many of the traders I know will make 80% of their money on these few days a month.
The next reason, which may not be so obvious, is that you don’t want to jump in front of a speeding freight train. It’s no fun to be going short on a trend day up, or long on a trend day down. On a trend day up you don’t want to short strength, and on a trend day down the last thing you want to do is buy weakness. It’s a sure way to end your trading career.
Conditions which often proceed a trend day.
Its important to watch the market for a few key items as they can clue you
in that trend day MIGHT be around the corner. These are all things a trader
can find at night, when the market is closed, and will allow you to have a
game plan in place for a possible trend day.
The most common thing that will occur before a trend day is range
contraction. Range contraction means the market will be in a low volatility
situation. The market fluctuates between periods of rest and movement. In
general, after a period of contraction an expansion will follow as the
market seeks to get back to its average volatility.
Look for NR7 Trading days. Briefly, this is a day in which the range is the
narrowest of the last seven or a cluster of 2 or 3 small daily ranges.
http://ftp.solarsite.co.uk/mooms01.gif
Double click the link above to show a NR7 Day.
This day it only traded within a 70 point range, so the next day we can expect a trending day. As you can see from the chart it trended strongly down as the NR7 was a consolidation.
Everyone ok so far
The above two methods should be used as you look though your end of day charts.
Once identified they should be on your screen the next day ready to trade the breakout or breakdown when it explodes in one direction.
Also there is the Marabozu reversal. This occurs when the prior day was a wide range day, possibly even a trend day, in which the market opened at or near its high/low and closed at or near its low/high.
Traders get caught going one way and when this reverses, panic type moves can occur. In this case you will look for trades above the prior days close, as well as above the prior days high (A trap, 90% of the time this will lead to a trend day, or at the very least a "Trend Morning")
Runaway Markets. This is a market that has no resistance overhead in an up trend or no support in a downtrend. Buying or selling panic will take place and the imbalance of buyers or sellers will keep on expanding the range.
A market approaching critical levels. This can be something like a 20 day high or low, a new high or low or the break of an important technical point. Usually these trend days will happen in the direction you think they will
because the herd kicks into gear and pushes things that way.
These are the kind of trend days that many TRADERS get killed on. Because they see the dummies and want to give them what they want. Which is 99% of the time exactly what you want to do. But, not always in these cases. In a few minutes I will be going over things you will see intra day that may key you in that its this
kind of trend day.
Ok, so the above are the conditions you can find the night before. One of these will be found in most cases before a trend day. I’ve never done exact research to say it happens X% of the time that you see one of these before a trend day, but Id say its at least 2/3 of the time.
Now, the next thing I will cover is, what will you see during the day to know it’s a trend day, or has a very high likelihood of being one. It’s always easy to look at the charts come 3:00pm and say "Yep, that was a trend day".
But, what can you do at 8:30 or 9:00am to say, "We are very likely to have a trend day here" and then adjust your trading accordingly.
First is obviously the criteria listed above. One of these will be seen before the trend day and key you in that its possibly, then when you see some of the stuff I’m about to list you can say, ok its beyond possible, its very likely.
A gap. The bigger the better. This will apply to a stock or an index. Now, a gap doesn’t tell you what way the trend day will be, but it tells you that its very likely when it occurs after any of the above criteria. Watch for the break of the first 60 minutes trading range.
Once that range is broken, 70% of the time that will be the direction for the rest of the day. Large gaps lead to trend days because one side of the market is trapped and they have to get out.
Whenever traders "have" to do something, crazy things happen. Trend day up is triggered as stops are hit, or a trend day down is triggered as the stops are hit from open trades.
High volume. Most trend days have high volume. If the volume is not heavy, you may have a "trend morning" but then a reversal in the afternoon. The trend days occur when one side of the market is very excited or trapped.
Volume will show you exactly how excited or trapped they are, and obviously if the volume is low, the greed or fear levels are also relatively low compared to what wed want to see.
Extreme TRIN readings and a strong TREND in the TRIN. The TRIN is also knows as the ARMS Index after its creator, Dick Arms. It is composed as follows: Advancing Issues/ Declining Issues * Up Volume/Down Volume. Normally the TRIN will fluctuate between .8 and 1.2. On a trend day up, you will see the TRIN low all day and trending lower.
This shows you no selling is coming in. It shows you net buyers. Of all the indicators I watch, TRIN is the most
important to me. I hate trading when the TRIN data is screwed up...happens about 1 or 2 times a month.
Next is the TICK, which is the next indicator I look at. This represents stocks trading on an up tick vs. a downtick on the last trade. I want to see a trending TICK and also some big moves in the TICKS showing institutional
activity. For a trend day UP, I want to see pullbacks in the TICKS leading to general buying.
Watch a trend day over noon, because this is when it often gives things up, and you end up with only a trend morning. If volume is light, the TICKS are bad or the TRIN isn’t good. Cancel all bets over noon. Its going to flip
close to 75%of the time.
A trend day is defined more or less by extremes. Extreme open, Extreme TICKS and TRIN. Extreme Volume. All of this of course adds up to extreme emotions on the part of traders.
Ok, last part then Ill take a few questions.
How do you capitalize on knowing we are likely to have a trend day? You had an NR7 day yesterday following a narrow range the day before. Today the market gaps up above yesterday and the prior days high. The TICKS are good, The TRIN is good and volume is zooming.
The easiest trade to take when you see the criteria start to shape up for a trend day is to go ahead and buy the breakout of the first hours range. Most of the time this is going to work. You buy that and simply hold it until the
end of the day or the criteria starts to change and you see that the extremes in the market are working off.
When that 60minute high is taken out, buy it with a stop and reverse set under the 60 minute low. That’s the
simplest way to play it. Keep the trailing stops under your pivots, call your significant other and tell them you are going on fancy date tonight and that’s that.
If you miss the first entry of the day, or wish to add knowing we have a trend day. Your best bet is going to be to play the Bull/Bear flags and the breakout and continuation patterns. One a trend day there may be very few of
these, maybe 1 to 3 good ones. You can also buy the stronger stocks on TICK pullbacks.
On trend days, because A) the volatility is going to be high and B) the potential is high you need to make a few adjustments with stops...Namely loosen them up. Stops should be trailed slightly under the last pivot lows
as the market continues your way. But keep them a bit looser than you normally would. The reason for this is that on a trend day, there is a tendency for a huge percentage of the days gain to come in after the bonds
close in the last hour of the day.
This is when the institutions, seeing that things have held up well will come in and give a big surge. This big
push they provide then forces more covering, which accelerates the movement and so on and so forth. When you get the 3 to 7 seven TRUE trend days every month.
YOU MOST DEFINITLY WANT TO BE POSITIONED IN THE LAST HOUR OF THE
DAY! IT CAN MAKE YOUR MONTH.
