How To Ride Trending Moves In The Market

A common issue I hear from traders is that, if they miss an initial move in the market or in a stock, they have trouble participating in a potential trend. Indeed, sometimes out of the frustration of missing the initial move, they will find themselves fading it and turning a missed opportunity into an actual loss. Here is one tool I use to trade potential trending (directional) moves in the market and how I use it.

If you click on the chart above, you will see a one-minute chart of the SPX futures (ES; bottom panel) for yesterday's morning session. Plotted above is the NYSE TICK readings, with the zero line highlighted in yellow and a green line providing a five-minute zero-lag moving average.(Chart from Sierra Chart).  

What we can see very early in the session is net buying interest (upticking), with the moving average of TICK above the yellow line. Notice, however, that the buying interest is modest and does not result in a higher early move in ES. Then we begin making lower lows in the TICK and lower highs, with the overall distribution of the TICK values falling mostly below the yellow zero line.A s that occurs, we can see ES price moving lower.Indeed the bounces in the TICK, representing efforts at market buying, simply cannot be sustained and result in greater selling pressure and now a directional move down in ES.

The key identification is that buying pressure in stocks is waning and, when it occurs, can only move the index to lower price highs. Those modest bounces in TICK are great short-term entries to the downside, allowing us to ride the emerging trending move.

Notice how this approach fits very well with the idea of trading cycles within a trending market:when we get lower price highs with each bounce, those become opportunities to ride the direction downward. The cycles provide us with good risk/reward entries and can be used as opportunistic exits if we're trading around a core position.

Finding the right tools and conceptual frameworks for your trading will not guarantee you a great trading psychology, but it's hard to maintain a constructive mindset without those tools and understandings.