Always adjust or the golf club shape trend day will grind you

Use the Force, Luke

I see this mistake all the time – from runners, and traders. You probably have observed the same in other type of activities as well. The proverbial salmon swimming upstream. Let me explain.

warm up prior to Sun Run; Georga St, Vancouver
Laszlo during his early morning warm up at the start line of the Vancouver Sun Run 10K event

I ran the Vancouver Sun Run 10K this past weekend, and there was a vivid reminder of being aware of your environment. The racecourse ascends steeply to the Burrard Bridge at the half way mark. At that stage, 20 minutes into the race, only experienced amateurs in good shape can keep pace, and that is why I was surprised at what I saw. Coming into the base of the hill, I eased down on the length of my strides, and at the highest point of the bridge many runners were exuding effort with 8 passing me by. That was the price I had to pay for the discipline in maintaining consistent effort. For the non-runner, when you reach a hill, the worst thing you can do is charge hard to maintain your pace. Instead, you should maintain your effort regardless of the loss of speed. Fighting gravity costs too much crucial energy which compromises our performance for the rest of the race.

To be exact I started to charge the last 10 meters of the incline and soon was running a faster than race pace on the way down. And the payoff? For a competitive situation like this I am happy to quantify the result. I passed 22 racers by the time I reached the bottom of the descent. Many of them who burnt their energy on the way up, which could have been the case with me if I had not kept a constant effort. I gained a net 14 positions on the bridge, which hardly ever happens after the halfway mark on a flat 10K.

How does this apply to traders? When a clear trend develops, and traders could benefit from the market’s inertia (like you can benefit from an efficient downhill run) some become hesitant. They wait for the perfect pullback, fiddle with candle patterns, sense the volatility as extra risk, doubt the breakout, or are busy measuring a perfect price target when the focus should be on riding the wave as long as possible. All they should do is just press the accelerator, go with the momentum and profit from the move.

On the opposite side when price action becomes a sideways grinder, when the track slows down, most traders work hard on finding setups hoping for a resumption of the already completed trend. What is more, many trade breakouts when the developing range is nothing but bunch of failing breakout attempts on either side of the pattern. They compromise with weak signals that have fewer attributes in their favor, when they should be particular when timing any entry. This is the time to hold back, go against the momentum and consider price targets very carefully. Do not force too many trade setups in a range and save your mental energy for a more efficient phase. What worked during the impulse move does not work in the correction that follows.

A 5-minute chart of the SPY ETF on Monday: the trend ended 90 minutes into the session
The S&P500 represented by the SPY ETF on Monday, April 20. Although it was a bull trend day the trending phase ended in the first 90 minutes of the session.

Today’s US stock was what I call a bull’s cudgel or golf club day. It consist of an opening trend (a haft) often including a gap that lasts the first 40 to 90 minutes of the day. Then the head range, like a head on a golf club, forms and very little actionable happens until the closing bell. Almost 50% of trend days mimic this shape, and what makes them hard to trade is that after the initial momentum, we have to adjust to conditions on the opposite side of the spectrum if we would like to exploit opportunities throughout the day. That is a skill that you can earn only through battle hardened experience. It is almost like a feeling, an art. But, the first step to deal with golf club trend days is to identify them and charge when it is efficient and slow down when conditions change.

Make sure the force is with you. Video: Use the force

The time zone we reference on our charts is Pacific Standard Time. Therefore, the U.S. cash market opens at 6:30 AM PST and closes at 1:00 PM PST.

About Laszlo Nagyferenczi

Laszlo Nagyferenczi is a day trader, analyst and instructor as well as the creator of the proprietary Context-Momentum-Signal concept. He has authored over 200 blog articles about his unique approach to trading and the Elliott Wave Theory. His clients appreciate his ability to go from the theoretical to the practical i.e. all the way to the actual trade set ups. Originally hailing from Hungary, Laszlo is fluent in English and Hungarian with a long list of education credentials including BA in Economics, Certified Elliott Wave Analyst (CEWA), Certified Adult Educator for T-Groups, Professional Co-Active Coach (PCC) at CTI. The real education, though, has been the trial by fire in the markets, with real capital at risk.

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