Swing trading versus intraday, whichever is better
Intraday Trading: How It Works - Methods, Tips (2021)
I.ntraday Trading: Price action trading is particularly useful for day traders. This is because timing is crucial in day trading. By aligning your entries with key turning points, it is possible to take advantage of quick trades.
Price action provides a natural tool for timing entries. Even if you are wrong, well-timed entries are helpful in limiting losses. Therefore bar patterns and candlestick patterns are becoming increasingly popular among intraday traders.
However, the skills of a savvy price action trader go far beyond chart formations.
Intraday trading - what to look out for
Here are three price action trading tips for intraday traders.
Tip 1: Avoid tight margins when trading intraday
Avoid trading when the market is showing tight consolidation. A narrow trading range hardly offers trades with a high probability of success and a solid risk-reward ratio.
Some day traders are dying to make money. Hence, they often aim for unrealistic profits. This behavior is particularly damaging when the market is in a consolidation.
If you want to squeeze a profit of 10 ticks out of a trading range of 5 ticks, you are wasting your time on the impossible. You will end up taking more losses. Scalping for a few points can be useful, but it is a tedious trading strategy. In addition, scalping is really not for beginners. So do yourself a favor and take a break when the market is in a tight trading range.
How do we know when a market is trading in tight consolidation?
Every trading session has a pattern of volatility. The market tends to be more volatile at certain times of the day and more sedate at other times. These volatility patterns provide guidance on low volatility trading hours during which consolidation is more likely to occur.
Usually a trading session begins and ends with high volatility. In the middle of any trading session, the markets can enter a phase of consolidation.
This is a 10 minute chart of the ES futures market.
- The trading session starts with nice long swings.
- A consolidation with small candle bodies begins around noon. In this situation it was unwise to look for trading setups.
- After a clear breakout, like this bullish push, we were able to consider buying again.
- The market continued on its upward trend without further consolidation.
The above example shows a characteristic volatility pattern. The volatility structure can differ from market to market. The best way to capture a volatility pattern is to measure the average trading range of a bar on the hourly (or 30-minute) chart. There are several free online tools for Forex traders that calculate the hourly rate range for different currency pairs.
A clear headed price action trader can spot consolidation patterns as they develop. Consolidation structures occur when the market fails to develop higher (lower) closing prices for at least three consecutive price bars.
Once you find out that a market is in a consolidation phase, it is time to stop trading.
Tip 2: Use price bars with a narrow price range to limit the risk
Narrow range bars are unique opportunities. They offer efficient trades that involve little risk and are likely to yield quick profits.
(Limit your risk with strategies NR4 / ID and NR7.)
There is one important exception to these price action tips. Do not trade low-range bars within a consolidation. Low-range bars are typical of narrow trading ranges that are not suitable for trading. So do not rashly trade price bars with narrow price ranges.
This example shows an NR7 trading setup.
- The trading session started with a little consolidation. Candles with narrow price ranges were not cheap signal candles here.
- The market was able to exit the consolidation and is clearly showing price swings.
- A bullish pullback ended with an NR7 bar.
- Even with a conservative profit target placed at the last pronounced low, this trading setup offers a healthy risk-reward ratio.
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Tip 3: Don't go against the momentum when trading intraday
One of the worst behavior mistakes a day trader can make is to trade against the trending day.
A trend day is characterized by the fact that the opening is near one extreme and the closing price is not far from the other extreme. A bullish trending day opens near its lows and closes at its high. On the bearish trend day, the opening is at the high of the day and the closing price is at the low of the day.
In a trading session where prices are all rising, one of the worst trading strategies is to open short positions over and over again. However, many day traders do just that. There are two causes that underlie such destructive behavior.
First, these traders refuse to accept the fact that they could be wrong. They think prices have to fall. There is no way you can be mistaken. Therefore, they keep taking short positions.
Second, be tempted by the prospect of opening a sell position at the daily high of the trading session. For some reason, you'd rather be a spectacular hero than a rich winner.
To avoid such losing battles, watch out for price momentum. The definition of momentum is the rate of change in prices used in technical indicators. Here, however, I use “momentum” as a loose term for the strength of a swing.
To see momentum, you need to pay attention to how the market reacts when it hits the latest swing high or low.
This example shows a bullish trend day.
- This bar pulled with force far beyond the last swing high.
- The potential for trending day became apparent when these bearish candles generated little interest.
- The strongest downward thrust from the trading session wasn't even enough to hit the latest swing low.
These are signs of bullish momentum, which is perfectly clear to a price action trader. It wasn't a short day.
Don't go against the momentum.
With these trading tips for intraday price action you can save yourself trouble and trouble
Two of the above three tips will save you trouble.
Do not trade when the market is in tight consolidation. Don't trade against market momentum.
When it comes to day trading, it is often more important to reduce the number of bad trades rather than trying to catch the trade of your life. Only trade when the conditions are right.
Would you like to learn an objective definition of market consolidation?
Would you like to learn more about trading with price momentum?
Check out my trading course - "Day Trading with Price Action"
This article was originally published by Galen Woods on his website: 3 Useful Tips for Intraday Price Action Trading
German translation by Karsten Kagels and Gaby Boutaud
Bonus 1: Four price action methods to determine the intraday trend
For all traders, the trend is the big issue. It is the emerging trend that gives everyone a boost. For day traders, the intraday trend makes the difference between a trading session with surprising profits or with large losses. By trading the intraday trend, we pursue the path of least resistance that leads to day trading profits.
By making the big context, the trend appears to be far removed from the current price action. As a result, many traders are tempted to remove price action from the trend equation. They rely on a distant moving average to determine the market trend and ignore price action. These traders are missing out on an important confirmation tool.
Using indicators to determine the intraday trend is sensible. However, if we combine it with price action, we can make it more effective. In this article, we're going to look at two methods that use price action indicators to track the intraday trend. In addition, we will then deal with two other pure price action methods to find the intraday trend.
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Moving average with price action
This method uses the 20-period simple moving average (SMA) together with price action to clarify the intraday trend. Basically we are looking for a weak pullback followed by a new high (low) to confirm an uptrend (downtrend).
For confirmation of a bullish intraday trend, look out for the following conditions. The explanation for the respective condition is put in brackets.
- The course or price touches the moving average. (Establishing a baseline. Useful for trading sessions that open with a gap in the price.)
- The prices remain above the moving average for at least one bar. (Bullish sign)
- Prices are pulling down towards the moving average without a bar making a high below the moving average. (Lack of bearish engagement.)
- Confirmation of the uptrend when prices rise above the last extreme high. (Confirmation of bullish market structure).
To confirm a bearish intraday trend, look for the following indicators:
- The prices are touching the moving average.
- The prices remain below the moving average for at least one bar. (Bearish sign)
- Prices pull back towards the moving average without a bar making a low above the moving average. (Lack of bullish strength)
- Confirmation of the downtrend when prices drop below the last extreme low. (Confirmation of the bearish market structure)
The following is an example of the NQ future.
This trading session started with a bullish gap.
- Instead of guessing whether this gap could start a new uptrend or close the gap, we expected prices to return to our benchmark of the 20-period simple moving average (SMA).
- The prices touched the simple moving average (SMA).
- This bar stayed below the simple moving average (SMA) and confirmed the bearish momentum.
- That bar made a higher high, but couldn't even rise enough to test the simple moving average (SMA).
- When prices fell and fell below the final low below the simple moving average (SMA), the downtrend was confirmed.
Despite a pullback in the middle of the trading session, this intraday downtrend continued until the end of the trading session.
Trading with just a 20-period moving average is a great place to start for any trader.
Price channel with price action
In this second technique, instead of using a simple moving average of the closing prices, we used two moving averages of the highs and lows. The resulting lines form a price channel that helps us to clarify the intraday trend.
Jake Bernstein used this concept in his day trading with a moving average channel.
Since this is a more complex indicator, the rules of interpretation are simpler. When two bars stay completely above the channel, we define a bullish trend. If two bars stay completely below the channel, we are dealing with a bearish trend.
The example above shows how the price channel helped us determine a change in the intraday trend.
- Although the prices had risen sharply since the beginning of the trading session, we were only able to determine the upward trend according to this method at this point in time.
- These two price bars changed the intraday trend to bearish.
There are different ways to construct a channel. In addition to using moving averages based on the highs and lows of the price bars, you can also use Keltner bands and Bollinger bands. Since the channels are structured differently, you have to adapt the rules to determine the intraday trend.
Finding the intraday trend - a comparison
Both the simple moving average (SMA) method and the price channel discussed above use indicators to clarify price action, but they are each different ways.
By comparing these methods with each other, we can better understand both methods. The simple moving average (SMA) method is designed to identify lack of or low momentum on a pullback in order to identify new trends. The Channel Method detects powerful price movements that push prices past the channel boundaries, indicating the onset of new trends.
How can we assess these two methods in comparison to the next two pure price action methods?
Larger time frames when trading intraday
As mentioned above, the trend describes the big picture, so to speak. It is an overarching perspective of the market. Therefore, a common method of determining the intraday trend is to observe price action over the larger time frame.
The following example shows how we use the highs / lows on the hourly chart to determine the intraday trend in the 5 minute timeframe.
This chart shows a 5-minute time frame in the upper part and the corresponding hourly chart in the lower part of the figure.
- The bar marked with an arrow in the lower hourly chart shows a lower low and thus confirms a bearish intraday trend.
- This bar formed a higher high and changed the intraday trend to a bullish trend.
More examples are provided by Kane's Stochastics% K Hook's Day Trading Strategy. This is a classic example of using a larger timeframe in intraday trading. The hourly chart is used to determine the intraday trend before trading based on the 5 minute timeframe.
For analysis with multiple timeframes, the Triple screen system in the book Trading for a Living by Dr. Alexander Elder (German translation) an extremely interesting read. In his solid system, he recommends a factor of 5 when considering larger time frames. An example relates to the 1-minute, 5-minute, and 25-minute time frames.
Trend lines in intraday trading
Price action traders love trend lines. These are useful for both intraday and longer-term analysis.
If you connect swing pivots with each other, you get trend lines with different inclinations and meanings. Trend lines mark the market structure of price swings and provide information about their momentum and speed.
The basic interpretation of a trend line is that if the trend is broken, the trend will change. The following example shows how a broken bear trendline indicates a later uptrend.
This method is simpler in the sense that it does not use indicators and is based on a time frame. But for it to work, you need to be able to draw trend lines.
The best way to find an intraday trend
There is no perfect way to determine the intraday trend. It will happen again and again that the market will continue the previous trend while we expect an intraday trend reversal. There are always times that we are confirming a trend and it is just beginning to reverse.
These situations are inevitable. That is why we have trading setups that precisely define our entries and limit our risk.
Each of the four trending methods presented here has its own specific disadvantages.
With the two methods, some of which are based on indicators, it is necessary for us to decide on an indicator setting. Without a sensitive indicator setting, it will only contribute little to our trend analysis. The appropriate value depends on the volatility of the market, which is constantly changing.
The larger time frame method thus depends on your choice of the larger time frame.Which larger timeframe reflects the intraday trend? The half hour and one hour charts are popular among day traders. But forex traders will likely prefer the four hour timeframe.
As for the trend line method, The challenge is clearly to draw meaningful trend lines. If we draw trend lines indiscriminately and haphazardly, we will encounter more zigzags (whipsaws) than trends. The crux of the matter is to draw consistent and meaningful trend lines.
If you want to learn a consistent approach to drawing trend lines, take a look at my Day Trading with Price Action course. There are dozens of examples out there and so you will learn to read the swings in the market and draw relevant trend lines.
This article was originally published by Galen Woods on his website: 4 Price Action Methods to define the Intraday Trend
German translation by Karsten Kagels and Gaby Boutaud
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Bonus 2: This is how intraday trend trading works with price action
This method comes from "Trade Price" (Sho), a member of the "Forexfactory Forum", where he shared his intraday trading method on the forum thread Intraday Trend Trading with Price Action.
He trades price action on the Keltner Channel and price action chart patterns that include pin bars, inside bars, and outside bars. This trading method is not a trading system with strict and fixed rules.
However, Sho points out some rules that produce high quality trades (A ++ trades). The following trading rules are a combination of his golden rules and my application of his trading approach.
Trading rules for intraday trend trading
Long trend trading
- Strong movement impulse over the upper Keltner band (10, 1)
- 50% response to a support level
- Rejection from the Keltner bands
- Buy at the closing price of the pin bar
Short trend trading
- Strong movement impulse under the lower Keltner ligament (10, 1)
- 50% rewind to a resistance level
- Rejection from the Keltner bands
- Sale at the closing price of the Pin Bar
Trading examples for intraday trend trading with price action
Profit trade - bullish trend
This is a 15 minute chart of the 6A futures contract (AUD / USD). The only indicator on the chart is the Keltner bands, consisting of a 10 moving average and two bands that have been shifted 1 ATR (Average True Range) from the moving average.
- There was a clearly bullish price movement above the upper Keltner band.
- The prices pulled back and came to a standstill at the 50% retreat level, so that the upward movement was temporarily terminated. The retracement area coincided with the lows of the previous outside bar, which acted as support in this case. A pin bar also appeared testing these areas before closing above the moving average.
- We made a buy at the closing price of the pin bar and placed a stop at its low, which resulted in a winning trade.
Loss trade - bearish trend
We continued to look for A ++ trades on the 5-minute chart of the 6A futures AUD / USD. This chart shows a trading setup that failed.
- There was a strong downward price movement outside the Keltner Band, i.e. below the lower Keltner Band.
- A pull back to the upside began and we saw two strong bullish bars with "shaved bottoms" (i.e. candlesticks with no bottom shadow), which meant heavy buying activity. (Not cheap for a short trade.)
- The upward pull back ended with a pin bar that was rejected by several resistance areas. This included the upper Keltner band, the 50% retracement level and a previous swing high (dotted line).
The pin bar put us in a losing trade as we were stopped out by the outside bar, which developed two candles after entering.
Final remarks: Intraday trend trading with price action
This is an excellent intraday price action trading method. It is based on a simple principle that is to follow the momentum.
Determining momentum is really crucial to successfully trading intraday trends. Look for bars that are completely outside of the Keltner Channel for strong momentum. (This is similar to Jake Bernstein's channel moving averages method.)
If you associate strong momentum with a pin bar that has been rejected by resistance or support levels, you will get a highly likely trade. When you add the 50% retracement and price rebound from the Keltner Channel, you get what Sho calls an A ++ trade.
I have found that the rejection from the lower Keltner band is not as reliable. Focus on the rejection from the upper Keltner Band (for very strong trends) and the moving average itself (for short trades, the opposite is true)
Remember, this is an approach to trading and not a rigid system. The trading rules above are just one possible formulation of this method.
I would like to thank Sho for making this excellent method publicly available. I would also like to thank Alan One (also from Forexfactory) for transferring the forum thread to a PDF document.
This article was originally published by Galen Woods on his website: Intraday Trend Trading with Price Action (Trade Price)
German translation by Karsten Kagels and Gaby Boutaud
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