Types of Trading Days

There are Six types of trading days - repeating over and over again and it’s our job to identify which of those types of day - today is going to be. If we can do that before the day passes then we are able to trade with a solid bias and a deeper understanding of where we are - and where we are going next. I have often said that it’s similar to a game of mahjong - except that the stakes are much higher.

In this post we are going to examine the various types of trading days; all of this ties into the Morning Briefing and our work done in the pre-market. We want to have a good idea about the events on the schedule and which of these events could move the markets while also considering the outcome of the moves seen when the data comes out.

Three Groups

It’s a popular concept that there are Six types of trading days but let’s start with the “group types” first; Sideways Trading Days, Range Trading Days, and Trend Days. Within these three days - “trend days” are what a lot of newer traders focus on but I believe we could argue that range days are generally “easier” for new traders to trust and execute.

In the picture above (Typical Day) there are a few pieces of information that really make the day specifically unique as a “Trading Range Day” - these pieces are the Initial Balance and the responsive trading at the edges.

Throughout these posts you will often see references to the Initial Balance (IB); this is an ‘old school’ concept that existed with floor-traders in the pits years ago. Now days it seems to mostly be a phrase that footprint chart traders and TPO chart traders use on their market profile charts.

Responsive Selling and Responsive Buying is a reference to how price left the range top and the range bottom. In a sideways trading day - we would not see responsive buyers or sellers at the edges and instead we would see random sweeps of trading activity across the range - and random changes in price direction as well.

Initial Balance

All of the trading days we will cover today will take the IB into consideration because it is a starting point or a place to begin our analysis each day. We want to look at how wide the range is - and if possible we want to examine the range with different tools to see the trading activity in a different light.

There are more than one type of “trading range days” - there is a “wide trading range day” and a “narrow trading range day.” The Narrow Range is referred to as an NR day - once we have more than two. In Technical Analysis education - a NR group defines a pattern of multiple days and ties directly back to volatility; expansion and contraction; consolidation and breakout.

Narrow Range Days

One popular trade strategy is called the NR7 - which is a focus on a market having 7 days of narrow ranges. For our discussion in this post - we want to understand that there is a trade strategy that uses multiple narrow range days as a possible early warning of an expansion day (or breakout day) and that there are more than 1 type of range days. What has the market done over the last few days?

Wide Range Days

It’s often said that Wide Range Days come before major trend reversals. What has price been doing? Have we been trending over the last few days or weeks? Was yesterday a Wide Range day? How did price close yesterday? These considerations give you an edge that few traders take advantage of.

One Candle Reversal - OCR

We want to move out to the Daily timeframe; look to see if today is near the top or bottom of a price range. This is our chance to consider the candle of yesterday; was yesterday a large candle with a lot of body and little wicks? Was yesterday a narrow body and long wicks?

Where did the candle close yesterday; near the ends (lower 20% or upper 80%) or near the mid? This can have a direct impact on the type of trading day we could see today.

While on that daily timeframe we want to consider if there is a pattern to be aware of; things like an iX-10, range, flag, cup, trend, Wide Range Day, Narrow Range Day … you get the idea. We want to consider if today is a continuation of those patterns or a breakaway of those patterns.

Sideways Days

Above is a picture of Sideways Trading Day. While the daily chart would show a sideways day and a range day as the same type of day - the difference between them is vast on the intraday charts. For one thing - the IB is very narrow on sideways days. Since we can not see the IB on the daily chart we are unable to distinguish the difference.

How traders participated in the day is also different for sideways days versus range days. On Sideways days there is just no real trading activity that would indicate committed players on either side (long or short).

These sort of days are often considered harbingers of big expectations. We see these days within short trading weeks and before large economic events. In fact - if you spot a Sideways Day (or multiple Sideways Days) and are not aware of any pending events - stop trading and go hunting for what is causing the market participants to sit out!

Narrow IB’s are not only for Sideways days - but if price was in a range yesterday you should examine it’s IB to see if it was a narrow IB or not. By recognizing the type of day we had previously - we can better understand what is possible today.

So - we have introduced range days and sideways days and now it’s time to introduce the days that change as the day progresses.

Expanded Typical Day

Consider a typical range day - that does not hold the range and begins to expand some time later in the day… this is what we call a Expanded Typical Day. Just like it sounds - we had a typical day (range) and one side didn’t hold so price expanded outside of that range.

These types of days are often referred to as Afternoon trend days at the OEC. I have developed a lot of educational material on the different types of trend days and this is one of them.

Trend Days

Now that we have introduced expansion - we can consider trend days. Again - we want to start on the daily chart and look at what happened previously. Have we been trending? Have we been trading in a range over the past few days? Did price breakout yesterday?

When it comes to a trend day it could be due to a continuation of price action spanning the last few days or it could be the start of a new trend - a breakout of a range.

The charts offer great clues - but knowing the events and the broader market bias really does provide insight into what we should expect today. It’s a combination of “where did we come from” and “what is the market looking forward to.”

When we tie that together with measured moves and market makers dynamics - we can typically develop a solid grasp for expectations.

Double Distribution

Earlier in this post I pointed out that we have different types of range days; well, this is also true of trend days. In the picture above we have a Double Distribution trend day (short) and in the picture below we have a Double Distribution trend day (long).

We have covered a lot of material here today; you will want to circle back and review the post a few times to get comfortable with these concepts. In future blog posts - each of these days will be covered in detail and I really believe this is a game changer for many traders who are still asking “where / how do I get my bias.”

Intraday Trading