Rules of Trend Continuation Trades:
1. Macro downtrend, Micro downtrend, and intraday downtrend, is the best case scenario for a trend continuation strategy. This entire post is centered around the idea that when we are in a macro bear market the best thing to do is short so when we are shorting there are a few essential things we must know. Firstly, the market must be in an overall downtrend. When we are in a downtrend we tend to create lower highs and lower lows which aids in the +EV of a short trend continuation trade.
When you are in the Macro downtrend, micro downtrend, and intraday downtrend scenario the following is of upmost importance.
- Take EVERY lower high for a breakdown to new lower lows. Lower highs must have at least 1 area of confluence, but it is better to have at least 2. These areas will be ranked by best EV.
*Assume each place is also connected with a previous lower high. When combining a lower high with one of the following other important zones, these trades become very high probability.
1.PREVIOUS DAY CLOSE- if this strategy is truly A+++ then we would be severly below yesterdays close and ready to use that zone for a huge selloff continuation from yesterday. in Fig. 1 and 2 you can see this illustrated perfectly. This is one of the specific scenarios where getting in early and fast is very much rewarded. It is important though that if you want to have a huge 30 point trade then you must also be willing to risk some. So if you want 30 you must be able to at least risk 10 or 15 points. Ideally just use the previous lower high as the spot to take the trade but if you are above the most recent use the next previous lower high which would just be premarket high/low.
2. Current LOD
3. Premarket Low
4. Premarket High (unlikely)
5. Previous day low
It is always worth it to take lower highs than to watch the ticker make them back to back with you not in the trade.
**These days are very rare because they cannot happen for long before we find a range again. There are circumstances such as finding new 52w lows where we actually could count on this to continue for perhaps 3 or 4 days but in general they only happen once every month or few because the market has no reason *yet to truly have back to back deep red days. When these days occur it is imperative to get in early and hold the entire day. It is alawys better to get in early and hold for LOD than it is to sit and try to daytrade it the entire day. In general though 30 points is more than enough for at least the partial.
Fig.1
90d:1h
Quality: A
Fig.2
3d:5m
2. Macro downtrend, Micro range, and Intraday downtrend.
Examples:
- There was about 7 opportunities today to make 5 points per trade. Starting at the first arrow we have a supply zone short or a "failed market open top." The market is currently in a range within a backside which will most likely fail at some point. When we make lower highs on the range that is when you want to get aggressive to the short side.
- On the second arrow we have a LOD short for trend continuation. This means we have a LOD formed within the first 45 minutes and we use that for a new lower high.
- On the third arrow (red) we have a spot that is very interesting. Previous day close is a perfect place for the SPY to find new sellers in this massive downtrend. We also have a sneaky somewhat hidden lower low right before this spot. It is broken slightly to the upside so its hard to catch this but if caught we have a massive move to the downside. The R is very much worth it and also very high EV.
- The reason why these trades on the previous chart are such high probability is because we are in a massive bear market and we are stuck in this range. In this range you should expect lower highs to form because ranges on backsides of a stock almost always break to the downside. This is the SPY we dont have random events that can change the entire market. We continue the trend until it is heavily broken. These 2 white arrow show that we made a lower high then confirmed the 2nd lower high right after. This is a perfect example of a backside ranging short.
