AM Trend Pattern Trades
On Friday morning we saw 5 consecutive pattern trades with little to no adverse excursion. The 1st trade was an exhaustion trading pattern which marked the bottom and had tick divergence going into the setup. This trade was good for 2 ½ S&P points.
More Trend Pattern Trades
As the exhaustion trade was completing we saw the tick make a higher high which led to the setup of the next trade, the exhaustion trend trade. You also notice that the software is also indicating a trend trade at this location. This does not mean that because there are 2 arrows you should double what you normally trade or that this trade has any less risk because of the additional pattern. It only means that the algorithm identified two patterns. This exhaustion trend pattern trade had 5 ticks of risk or less as a stop loss, and had a profit of 3 ¼ S&P points.
A big ZoneTraderPro advantage is knowing where to get out of a trading pattern based on the blue counter trend zones. The blue counter trend zone began to print at 10:03:42 EST and the market traded at that zone at 10:06:41 which gave you 3 minutes to place a target at or below 1837.25. The reason this is important is that the statistics indicate that approximately 50% of the time the market will not trade through the blue counter trend zone. So knowing this you can establish a trading plan that takes profit at a fixed amount or just short of the blue counter trend zone.
This sets up another trend pattern trade worth another 2 ¼ points which had no adverse excursion and a higher tick low at the entry point.
This trade then sets up an additional trend pattern trade worth 3 ½ points and only one tick of adverse excursion. During the trade an interesting trading decision is going to have to be made so let’s analyze it. After the market traded four ticks through the red intermediate zone there is a 4 tick selloff.
The 4 tick selloff is not what is concerning, it is the red dot which shows that a lower tick low has been made. Normally it is a bad idea to stay in a trade with the tick filter has told you to get out. At this point however good trading practice would have you moving your stop loss to breakeven, so this is a free trade. The reason you would want to consider staying in the trade is because of the fact the market has traded 4 ticks through the red intermediate zone. When this occurs, it is more likely that the market will trade to the blue counter trend zone, which it eventually does. As noted in the paragraph above, the blue counter trend zone starts to print at 10:40 EST, and the market trades there 22 minutes later.
That lower tick low then sets up an exhaustion trading pattern with tick divergence at the market top, giving you 5 winning trades in an hour and a half worth a total of 13 ½ S&P points.