A Look at Patterns Preceding Trends

One of the most common pre-trend setups requires monitoring time at price. The more time spent at price, the more volume accumulates, subsequently a fair price and fair value area take shape. In markets, momentum is recognized as a vertical move away from fair value. Uptrends begin with positive momentum and downtrends start with negative momentum.

Powerful moves often occur after a market has gone through a period of choppy trendless trade. Think of it as the time it takes to build up energy for the big race. When pent-up energy is released the move is often one-directional and rapid.

The most common conditions that precede a breakout are a series of three to five days with similar or overlapping prices. The day ranges and volume tend to be below average. Also, opens and closes are often very near each other. The macrograph below illustrates these components. Macrograph shows price action in profiles. Profiles display the usual vertical dimension (high minus low), as well as the horizontal dimension or time at price.

Just before QQQ started trending lower there was a series of five sessions with below average ranges and severe overlapping prices with similar opens and closes. If you prefer to be a seller of volatility, stay away from markets that are wound tight, like QQQ in this example. If you prefer vertical or trend type trades, search for markets that meet the criteria in this macrograph.

John Seguin, Market Taker Mentoring

Trader Education