Trading the Day After a Trend
Identifying Patterns Post-Trend Day
Our job as traders is pretty simple…
Identify patterns that have a tendency to repeat over time and trade those patterns.
And, usually, the best patterns come when a broader supply and demand imbalance has occurred.
Think big trend days, exhaustion bars, etc…
So here’s a pattern I’ve observed over the years which tends to play out more often than not.
After a big trend day, the market tends to drift back against the trend overnight and then revisit the prior extreme at least once the next day.
What do I mean?
Take this DOW example, a decent downtrend day, it just about closed in the lower 25% of the range.
The overnight session has a habit of drifting back to prior resistance, before attacking that last low at least once more.
We saw similar the other day on the DOW to the high side.
It put in a solid ‘proper’ trend day to the upside and closed pretty much at highs.
Overnight it drifted back into the trend from the prior day.
Found some support (volume cluster from the day before) and re-tested the prior high right at the open.
So how could you play this?
Well, this is a theme rather than a strict rule-based setup like an ORB right, so with theme-based plays, you need to use some discretion and judgement…
You work on the assumption that price will retest that extreme, and then reverse engineer from there finding a suitable entry with limited risk and some kind of trigger pattern.
Eg: Support holding pre-open + ignition bar with a stop under support.
You get the idea…
It’s no holy grail but perhaps another to research and stick in your playbook.