How to identify a trend day before it happens

Ah, trend days on the indices… that occasional condition that brings so much joy or sadness to so many traders.

Catch it and you feel like a trading God, misjudge it and feel like a total mug when you review the chart. “How on earth did I not see that?”

Wouldn’t it be nice to know in advance that today would be a trend day?

Ring ring…

“Hey buddy, it’s SPX here, today is going to be a big trend day, get long at the open, go down to the pub, come back at the close, and collect your winnings”

Sadly that doesn’t happen… except on Instagram of course.

No one knows if the day will be a trend day BUT I think there are a few clues traders can look out for to help.

Let’s explore;

1 – Prior day’s range

If yesterday’s range was large, then the chances are today’s won’t be large too. Two trend days in a row can and do happen (especially after unexpected news), but by and large, a trend day is often followed by some follow-through and congestion.

Vice versa, trend days have a higher probability of occurring after a narrow range day, particularly an NR7 or similar. (As long as you are not in a holiday season, or waiting for a big econ number.)

2 – Overnight session

If the overnight range was reasonably large, active, and the open is near the extreme of the ON range, then we could be in for a big trend day.

But saying that, it shouldn’t be so large that the gap takes away the meat of the move…

I know, I know, these rules are never simple!

3 – Opening Range

If the first 10 – 15 minutes has a larger than usual opening range, with more volume then there’s a higher chance of a trend day.

Why?

Well if there’s a supply/demand imbalance (needed for a trend day) then that’s likely to show itself in the first chunk of the trading day.

Other clues like, breaking a key level, some kind of data, the start of the month or the quarter can also ignite a strong trend day.

We never really know when a trend day will come.

But I think the key is to be prepared, and have some kind of decision-making process that asks the question.

“Is this likely to be or is this turning into a trend day?”

If that answer is “yes” then how will you trade it?

The obvious answer is to find what you believe to be the best possible entry and hold until the close…

Easier said than done of course, but you don’t need to capture many trend days to really boost your quarter.

Happy trend day hunting…