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Monday, May 25, 2009

OK! Its a TREND Day, Now What Do I DO?

Using the TICK to Time Entries on a Trend Day

Mar 31, 2009: 11:35 AM CST  from Afraid to Trade.com Blog by 

Trend Days are more common now than they used to, and so it’s a good idea to look for methods to be more profitable when they occur.  Let’s look at how the TICK can be used to time entries into an established Trend Day.

(Click for larger image)

We could have suspected a Trend Day was forming early on, from the morning anouncement that the Government refused to bail out General Motors (GM) (a big news event) and from the morning’s large-scale opening gap that did not fill.  Also, the TICK began the morning with a -1,400 reading.

The TICK is the number of NYSE stocks registering an uptick vs those registering a downtick.

In this chart, I’m showing the 1-minute chart (compressed) with volatility (swing) Color Bars (a function of the average true range).

The trade set-up occurs when the TICK registers a high above 0 (and then later at +500 as the day progressed) and then turned down from that level.  I have the 0 TICK line marked for clarity (along with the -1,000).  The Green color helps time entries - in a downtrend, sell up-swings.  The green color helps clarify what consistutes an upswing.

You can exit when the TICK makes a reading near -1,000, or you can hold all positions (expecting a trend day) until certain moving averages or a trendline (that connects the highs) is broken.  These exit signals occurred as price broke above the Trendline and made consistent new TICK highs towards the last hour of the day.

Try to keep things as simple as possible - remember that most indicators (oscillators in particular) fail on Trend Days because they either give you false divergence signals or they stay overbought/oversold all day long, both of which tempt you to trade counter-trend on a trend-day which is the least profitable strategy.

Early identification of a Trend Day as it develops is key, and you might not be sure until noon, but once you feel price structure has developed enough, only trade in the direction of the trend that is developing.

Corey Rosenbloom
Afraid to Trade.com

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