Daily Market Direction

JJJJ

What is the best indicator(s) for projecting and monitoring the market direction after the open ? Yesterday (1/2/19) was a great example of the market opening in the extreme negative then making a huge upswing. Looking at it from a day trade entry possibility of entering and selling the same day.

markd

I don't know if you can predict extreme days. But, you might try something like this:

On a five minute SPY chart, set up the indicator Fast Stoch (24,1). Basically, that tracks where price is in a two hour price channel (there are twelve 5 minute bars in an hour). Then add a 6 bar (half hour) moving average.

You would trade it like this:

Long entries:

wait for Fast K to close at least one bar below 20, then enter long on a close above the 6 bar moving average.

Place a stop at the low of the entry bar, or, if that's too far (a tall bar, or long tail), the highest preceding low below your entry. Don't move up the stop until Fast K crosses 80.

Long exits:

wait for Fast K to close above 80. Exit on that close (especially if the up leg is weak, e.g. hasn't made a higher high when it should have), or, , or move stop up to each higher low, exit on close below MA. Exit on close if you don't get an exit signal before then.

Short entries:

wait for Fast K to close above 80, enter short on close below MA.

Place a stop at high of entry bar, or lowest prior high above entry. Don't move the stop until Fast K crosses 20.

Short exit:

wait for Fast K to close below 20. Exit on that close (especially if down leg is weak) or move stop to each lower high, or exit on close above MA. Exit on close if you don't get an exit signal before then.

I just made this up on the spot in response to your question. I haven't done any back testing, so you should before you try it. It may be good in this market but not in others. Also, its more likely to work on the biggest, highest volume ETFs, not stocks or smaller ETFs. Also, it will probably take you out of trades you would like to stay in, or cause you to miss good trades altogether and it may not get you out in time to avoid big losses. You probably shouldn't hold trades overnight because the opens can be so volatile, especially on news.

Note: it's hard to backtest intraday systems because you only get a month or so of daily data, so you should probably test going forward (i.e., paper trade).