Sprinting Into a Trend

When trends begin there tends be a violent move from a fair value area. The range on the day of a breakout usually exceeds the average, and it is often almost twice the length of a normal day. The so-called “sprint” from value is also called a trend day and occurs 10% to 15% of the time.

Odds for catching a trend day nearly double when the previous 72 hours have seen below average volume and ranges. In addition, day ranges tend to overlap severely, while opens and closes during regular trading hours are near each other. A series of candlesticks with small bodies are common before trend days. 

The copper chart (below) displays colored value areas. These fair value areas capture a standard deviation of volume during the most liquid time of day or regular trading hours. Note that just before breakouts, these value areas overlap and the ranges are below average. When these patterns materialize, odds favor swift vertical moves or breakouts. These are “sprints” because they are single prints (single + print = sprint) or very low volume bars that go untested. In this case sprints formed as sellers became very aggressive and buyers were scarce.

The crude oil chart below shows the same pattern developed just before a rally ensued with a few sprints or days with single prints or untested bars. Trend days are the holy grail for speculators. Sprints are rare but common at the onset of trends. The payoff is often far better than most days if you jump in early enough. Increase your odds to catch sprints by identifying when a pre-trend pattern is developing.

John Seguin, Market Taker Mentoring

Trader Education