One of the questions we frequently get is " How do I transition from a fast moving market to a slow market and vise versa" . The answer is pretty simple, you need to have a "playbook" or a set of rules for both. If you end up having these already in place then you will know exactly what you should be doing when market conditions start to change. Let's take a look at a few items to consider when making your very own playbook.
Volume is a great tool and can be a great indicator of the type of day that could be ahead. Keeping track of the volume at the beginning of the New York session and the EOD or end of day volume will help you track of whats going on with the market.
By keeping track of these numbers and finding an average for fast moving days and an average for slow moving days will help you judge what could in-store for the day. Not only will it help you plan for the day ahead but it will also help you get a feel for how the market is reaction to news and certain levels of support and resistance.
As many of you know we are big fans of the tick chart/ tick candles. One of the items we look at every day is the size of the candles and how many candles have been produced. By looking at the size of these candles it will let us know if the market is making larger moves and by looking at the amount of candles we will know if the market is actually moving.
This might sound very elementary but by doing these simple reading we will be able to get an idea on how the market could potentially move throughout the day. For example is during the last NY session we only had 50 candles throughout the whole session and an additional 20 candles during the ETH session it would be fair to say that the upcoming day might be extremely slow. All these little clues help us know what trading system to deploy.
Every trader must have a set of rules for fast and slow moving days/markets. Now each set of rules will be different so we will not go into detail on what rules to pick rather go over an example.
During a slow day, one of our rules is not to take any breakout trades. This is due to the fact we are looking for deals and during slow range bound days breakout trades can easily turn into traps or failed break outs.
After we define one rule we would go back and look at the rest of our trading system and see what normally doesn't work during slow days and what doesn't work during fast days. This is where keeping a journal comes in handy because you already have all this info, all you need to do is decipher it and put it to good use.
In summary each trader will need to find his and her own set or rules for slow markets and fast markets. This does not mean traders need to reinvent the wheel it simply means minor tweaks need to be made to their system.
Comment down below if you have a playbook!