Day Trading 101: Different Types of Trading Days

I am a fan of adjusting trading techniques/game plans according to an assessment of the type of trading day.

Today I decided to touch on an educational feature rather than provide a certain market outlook.

Many of my clients and blog readers know that when it comes to short-term trading I am a fan of adjusting your trading technique/game plan according to your assessment of the type of trading day that is developing in front of you. My opinion is that there are three main types of trading days:

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  1. Most common is two-sided trading action with swings up and down – this type of trading day is most suitable for using support and resistance levels along with overbought/oversold indicators. An example of such a trading day is reflected below with the mini Russell 2000 from March 2nd, 2015. Notice I use range bar charts which is a different educational topic I touched on before. On this chart I have overlaid some indicators I developed and like to use, free trial is available.

    Custom TFE - Russell 2000 Index Mini Equalized Active Continuation Range Bar, 18 Tick Units
    Custom TFE – Russell 2000 Index Mini Equalized Active Continuation Range Bar, 18 Tick Units
  2. Strong trending day, mostly one directional – this type of trading day is the least common, many times it will happen on Mondays and maybe 3-5 times a month at most – this type of trading day is most suitable for using ADX, MACD crossovers and pretty much looking for pullbacks to jump on the trend. An example of such a day is below with the 5-minute chart of gold futures. Notice the trend lines.

    GCE - Gold(Globex), Equalized Active 5 Min. Continuation
    GCE – Gold(Globex), Equalized Active 5 Min. Continuation
  3. Slow and/or choppy trading day – this type of trading day is best suited for taking small profits from the market by looking at volume spikes, using stochastics as possible entry signals and usually waiting for a pullback before jumping in. An example of such a choppy, low volatility day is below with the mini SP 500 15-minute chart. Notice the very tight range prior to the open of the cash market and notice the range for the full day was less than eight points!!

 

Custom EP - E Mini S&P 500, Equalized Active 15 Min. Continuation
Custom EP – E Mini S&P 500, Equalized Active 15 Min. Continuation

 

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A good question is, “How can one asses what type of trading day we will have while the market is still trading?” I am doing some work about it and will be happy to hear feedback via email but here are some initial observations:

  1. Was the overnight session a wide, two-sided trading range? If the answer is “yes,” there are good chances for a similar trading day during the primary session (primary session is when the cash/stock market is open)
  2. Mondays have the highest chance for trending days
  3. The behavior of the first hour of trading can also suggests the type of action for the rest of the day
  4. If the first 30 minutes have good volume, better chances for type 1 or type 2 trading days
  5. Low volume during first 30 minutes can suggest a choppy (type 3 trading day).

Disclaimer – Trading futures, options on futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. You may lose all or more of your initial investment. Opinions, market data and recommendations are subject to change at any time.

About  Ilan Levy-Mayer

Ilan Levy-Mayer has been a commodities broker for over 16 years, and holds an MBA in Finance and Marketing from Hebrew University in Jerusalem. Ilan is currently the vice president and a senior futures broker overseeing online future trading platforms and commodity futures trading systems at Cannon Trading Company.

Take a step in the right direction and contact me today, toll-free: 800-454-9572 or directly by sending me an email.

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