Trend Trading Pattern

Trend Trading Pattern

The ZoneTraderPro trend trading pattern is the basic trading pattern of the system. The theory behind the trend trading pattern is that when a trend is established the market will continue in the direction of that trend, following the pattern of profit taking and trend resumption.

ZoneTraderPro prints these areas of support and resistance in advance of the market trading at these zones. If you know where those zones are in advance, you can set limit orders at these zones.  The blue counter trend zones are defined in advance of the market trading there.  This is important because traders will want to place the target to take profit from the trade.  It is extremely important to note that 50% of the time the market approaches a blue countertrend zone, price does not trade through the zone and the market retraces at least 6 ticks.  Why give up 6 ticks of profit because you didn’t know the zone?

In the picture below, the three Trend trades are easily identified as the market moves from the blue counter trend zone back to the intermediate red zone. The blue countertrend zone is the typical area where the smart money will start to cover the bets they made when the trend initiated. At this point, the retail traders finally have a trading signal, but quickly find out they are the dumb money and weak hands, as the institutional traders cover their trades.

Trend Trading Pattern
Trend Trading Pattern

 

The ZoneTraderPro TICK Filter

ZoneTraderPro has the TICK filter built into the pattern.  In a long trading pattern, the TICK filter looks for higher-highs and higher-lows going into the trade.  The filter setting can be adjusted to allow for minor adjustments to the rule.  In the picture below we see two trend trades.  The first short trend trading pattern has lower TICK lows and lower TICK highs going into the trade.  The market trades into a second trend trading pattern.  There was a significantly lower tick low, but the tick high was exceeded by 50 ticks. It is important to look at the light blue counter trend zones.  If you were short from the 1424 hours exhaustion trading pattern you knew where 50% of the time, the market stops and begins a retracement.  The same thing happens at the second trend trade, which ends with an exhaustion calling the bottom, 1 tick short of the blue counter trend zone.

Trend Trading Pattern with TICK Filter
Trend Trading Pattern with TICK Filter

 

TICK Filter Divergence

It is very easy to see TICK divergence at the blue counter trend zones.  This develops an excellent out of the box trading pattern.  In the picture below, the S&P is making a higher high, but the TICK is divergent.  When the TICK fails to make a higher high a low risk trade can be taken.  The trend trade long trend trade would be avoided because of the trading filter.

TICK Filter Divergence
TICK Filter Divergence

 

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