HOW TO FIND THE INTRADAY MARKET BIAS WITH PRICE ACTION

The one thing that intraday traders hate is to get on the wrong side of the market. Fighting against the market bias is a drain on both your financial and emotional capital.

Hence, setting the stage for the price action of the next trading session is a critical step. For a minimalist method, start with a simple price action trading tool – the price channel.

A step-by-step guide to determining the market bias:

1. Draw the most recent trend line channel based on the last session.
2. Use the same trend line channel as a tentative structure for the price action of this session.
3. Focus on the interaction between the channel and the price action to work out the market bias.

It’s much easier to show you what I mean than to explain further.

Let’s go on to the examples.

INTRADAY MARKET BIAS EXAMPLES

The examples below come from four consecutive trading sessions of the S&P E-mini (ES) futures.

Each example shows two trading sessions. (Sessions are divided by orange vertical lines.)

• Example #1 – Session 1 and Session 2
• Example #2 – Session 2 and Session 3
• Example #3 – Session 3 and Session 4

In each example, the earlier trading session displays the origin of the price channel. The later session explains the utility of the price channel in judging the market bias.

100% lines refer to channel trend lines. 200% lines refer to a channel trend lines projected with 200% of the original channel width.

The swings, trend lines, and channels are drawn with an objective framework taught in my trading course.

NOTE: These examples are selective at random. They are meant to explain a general process of analyzing the market bias with price action. The aim of these examples is not to point out specific trading setups.

EXAMPLE #1: BREAK OF BEAR TREND LINE (BULLISH)

This example shows an opening gap that rose above the bear trend line from the previous session. It pointed to a bullish bias.

1. Using the price action in Session 1, you could draw a bearish price channel. Then, use this channel to analyze the market bias of Session 2.

2. Hitting the 200% line is a typical sign of exhaustion. The powerful bounce off the line implies bullishness.

3. This opening gap above the bear trendline dictated a technical bullish bias. Note that the entire opening price bar was above the bear trend line.

4. The broken bear trendline flipped into a support area. These bounces are possible long setups. At least, they served to confirm the bullish bias of Session 2.

Session 2 did not turn out to be a strongly bullish session. Nonetheless, if you intended to enter in the first half of the session, and to exit in the second half, being bullish had a slight advantage.

EXAMPLE #2: BREAK OF BULL TREND LINE (BEARISH)

This example shows Session 3 opening with a bullish stance. However, the tide changes swiftly as the bearish bias became evident.

1. The anchor of this recent bull trend line was found two trading sessions ago in Session 1. Hence, it has greater significance.

2. Session 3 opened above the high of Session 2 and appeared to continue the bullish bias.

3. There was no reason to suspect a bearish bias until this break of the bull trend line. It was premature to conclude a bearish bias. But the bullish bias was certainly being challenged.

4. These three tests of the broken bullish trend line confirmed its role as resistance.

5. This substantial downswing confirmed that the market has turned bearish.

The example demonstrates the fluidity of market bias. Market bias is not fixed to a trading session. It changes within a session and may do so rapidly.

In the above example, the market proceeded to shoot up sharply after plunging.

EXAMPLE #3: TRAPPED WITHIN BEARISH CHANNEL

This example shows Session 4 adhering to a muted bearish bias.

1. A bear trend line was drawn with two swing highs from Session 3.

2. Price bounced up sharply from the 200% line.

3. If the market had broken the bear trend line, it would have confirmed a technical bullish bias. However, it fell short of breaking the trend line. This led to bearish expectations for Session 4.

4. Session 4 opened lower within the bear channel and confirmed a bearish bias.

5. The minor double bottom at the 200% line was a sign of market support.

6. The market seemed trapped within this expanded price channel.

BONUS EXAMPLE #4: THE LARGER PICTURE

This example shows Session 1 to 4, plus an extra two sessions. Here, you will also find the three price channels we went through earlier.

This big picture example seeks to show how these channels add value beyond the next session. These trend channels also work together to give you a more reliable market bias analysis.

1. The most violent upswing in these examples was foreshadowed by a confluence of two major support: the 200% line of Session 3 and the flipped trend line from Session 1.

2. The 200% line from Session 3 proved to be a critical market support.

3. The market could not rise to the trend line. The 100% line halted it. This display of resistance was a bearish detail.

4. The market fell sharply, as it punches through a significant support.

5. The flipped trend line from Session 1 continued to be useful as a target area for short setups.

CONCLUSION – HOW TO DETERMINE THE INTRADAY MARKET BIAS WITH PRICE ACTION

A simple trend line channel drawn with the price action of the last trading session.

This is all you need to set critical support and resistance levels for the next trading session.

It is an objective tool for setting the stage and determining the market bias in the next trading session.

As you can see from Example #4, the analysis can get a little complex as you consider more price channels.

Hence, it’s important to focus on the most recent price channel as your primary tool. This is especially critical when you’re just getting started. As you gain experience, you can integrate channels from several sessions ago for more insights.

The method described here is just a starting point for determining the intraday bias.

It may not be the only tool you use to set the stage for the next trading session. But with practice, you will find that it’s an immensely helpful tool.

5 WAYS TO FIND SUPPORT AND RESISTANCE WITH PRICE ACTION AND VOLUME

Want to succeed at trading the markets? Good trading tactics start with finding reliable support and resistance. These critical zones are helpful for entering new trades and for taking profits.

Finding reliable support and resistance is a crucial ability of a professional trader. Support and resistance are supply and demand manifested by price action.

Learn to ignore the market noise on your charts. Focus on finding the support and resistance zones that matter for your trading plan.

There are many ways to find support and resistance. But for the best results, you should concentrate on price action and volume.

Hence, the five methods here are mainly derived from price action and volume.

#1: SWING HIGHS AND LOWS

When you track market swings, you are following the turning points of price action. Each turning point is the result of the market being supported or resisted.

Hence, observing market swings is fundamental to identifying support and resistance levels.

The example below shows how swing pivots acted as support before flipping into a resistance level.

Many novice traders had only a vague introduction to drawing swing highs and lows. As a result, they lack precise rules for marking out swing highs and lows.

This subjectivity is a huge problem. On historical charts, you can mark out swings that perform well as support and resistance. But you will find it tough to replicate the same results on a real-time chart.

To ensure consistency, you must learn an objective method for marking market swings. One standard method for marking out swings is the percentage method. In my course, I cover another swing analysis method based on bar highs and lows.

#2: CONGESTION AREAS

Congestion areas are one of my favorite ways to find support and resistance zones.

When the market congests within a price range, it means that the market is interested in that price range.

And market interest is not quickly forgotten. Thus, past congestion areas become significant support and resistance.

The blue zones below are Congestion Zones as defined in Day Trading With Price Action.

Note the three Congestion Zones within a tight price range. This observation implied its potential as a support (resistance) area.

Learn more about trading with congestion areas with this article.

#3: EXTREMELY HIGH VOLUME

Remember, support and resistance is merely market interest manifested as price action.

You are looking for the interest of the market. Hence, you must not overlook trading volume.

If you are interested in the market, you trade it, contributing to its trading volume. The same goes for everyone else. Hence, trading volume is a powerful indicator of market interest.

In practice, you should look for price bars (candlesticks) with extremely high volume. Then, use them to project support and resistance.

What is extremely high volume?

My definition:

Volume that exceeds the long-term average volume by at least three standard deviations

Tip: Use the Upper Band of a Bollinger Band applied on volume to identify these extreme signals.

If you look closely at the price action before the high volume bar, you will notice sideways trading. Both congestion areas and high volume bars are signs of market interest. Hence, it’s common for them to occur together.

For more examples, see this article – Reliable Support and Resistance Zones With High Volume Signals.

#4: PRICE GAPS

Price gaps are also effective support and resistance zones. Why?

Gaps create a vacuum. Although the market has moved past them, no actual trading has taken place within the gap zone.

Hence, traders who intended to buy or sell within the gap range missed their chance to do so. And they are now waiting for the market to give them a second chance.

When the market returns to the gap, they will seize that second chance and send in their trading orders. This behavior creates the potential for support or resistance zone.

In the example below, you will see how a bearish gap acted as an effective market resistance.

Using price gaps as a support and resistance zone is a rewarding strategy for the patient trader.

Many traders get excited after an opening gap and are eager to get into the market. You might be better off waiting for a chance to trade the support (or resistance) that the gap implies.

#5: PSYCHOLOGICAL NUMBERS

Take a look at these headlines:

• Wall Street points to lower open as investors eye Dow 20,000
• S&P 500 Closes Above 2000 for First Time
• Nasdaq Breaks Through 6,000 Barrier, But Should We Party Like It’s 1999?

They are just a small sample of headlines that show interest in specific round numbers.

In the line chart below, you will see how the $50 and $100 levels acted as support and resistance for QQQ (NASDAQ 100 ETF).

It’s clear that certain price levels have a psychological impact on investors and traders. These levels attract the market’s attention.

Again, it’s all about market interest. And round numbers are the prime example.

The Natural Number Trading Method is a trading strategy that tries to capitalize on this psychology.

CONCLUSION

For finding support and resistance, the most important concept is market interest.

You want to find out the price zones that the market is interested in.

You can indeed combine the tools above for a more compelling location of market supply and demand.

However, it’s good to stick with one primary technique to find support and resistance. Use other tactics to supplement it. This way, you will not dilute your attention by trying to watch out for too many features.

Another point to note is this. Finding support and resistance is not enough for a trading strategy.

To create a trading framework, observe how price behaves around support and resistance. Consider the volatility and price action around the support and resistance.

Then, form a plan to determine an entry trigger, stop-loss point, and profit-taking point.

Finally, identifying support and resistance is an art.

There is no guarantee that the support and resistance you find will hold up each time. In fact, it’s guaranteed that they will fail you sooner or later.

Nonetheless, support and resistance is a crucial concept that you cannot ignore. Knowing how to identify support and resistance will definitely upgrade your trading performance.

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Strategy EMA, RSI

Timeframe: 1-hour.

In this system, we use 3 indicators:

1. 5-period Exponential Moving Average (EMA 5) applied to the Close.

2. 13-period Exponential Moving Average (EMA 13) applied to the Close.

3. 21-period RSI (RSI 21)

Entry Rules for Long Trades:

It’s simple. We enter a long trade when EMA 5 crosses EMA 13 to the

upside… AND our RSI 21 > 50.

Entry Rules for Short Trades:

Enter short when EMA 5 crosses EMA 13 to the downside.

AND RSI 21 < 50.

Stop loss = 20 – 30 pips… depending on the volatility of the currency

pair. For more volatile pair, like GBP/USD, stop loss = 30 . For less

volatile pair, like EUR/USD, use stop loss of 20 pips.

Timeframe: 1-hour

Exit Rules for Long Trades:

Exit the trade when EMA 5 crosses back below EMA 13

Or when RSI 21 < 50.

Or when price stalls at major resistance, trendline, pivot points,

Fibonacci projection target.

Or when bearish engulfing patterns or inverted hammer patterns form.

Exit Rules for Short Trades:

Exit our short trade when EMA 5 crosses above EMA 13

OR RSI 21 > 50

In the pictures below EMA, RSI, Trading System in action.

STRATEGY USING BOLLINGER & MACD

This simple day trading strategy was published on TradingMarkets.com by Markus Heitkoetter, a day trading coach from Rockwell Trading. He is also the author of The Simple Strategy – A Powerful Day Trading Strategy For Trading Futures, Stocks, ETFs and Forex.

This day trading setup uses the MACD indicator to identify the trend and the Bollinger Bands as a trade trigger.

The MACD parameters are:

• 26 for the fast moving average
• 12 for the slow moving average
• 9 for the signal line

The Bollinger Bands settings are:

• 12 for the moving average
• 2 standard deviations for the bands

TRADING RULES

RULES FOR LONG DAY TRADE

1. MACD above signal line and zero line
2. Place buy stop order at the upper band of Bollinger Bands

RULES FOR SHORT DAY TRADE

1. MACD below signal line and zero line
2. Place sell stop order at the lower band of the Bollinger Bands

TRADING EXAMPLES – DAY TRADING WITH BOLLINGER & MACD

WINNING TRADE

A Simple Day Trading Strategy – Winning Trade

In his article, Markus Heitkoetter used the trading time frame of 4500 ticks for S&P E-mini contract. It means the chart plots a bar every 4500 trades. To keep things simple, we followed the recommended timeframe.

The day started off in congestion before having a nice bear run. This simple day trading strategy managed to catch the beginning of this bear run for a nice profit.

Let’s take a look at this trade in detail.

1. We had the most potent bull run of the day here. However, this higher high coincided with a lower high on the MACD histogram. This occurrence is a bearish divergence, a warning sign for reversal. This bearish divergence set an excellent context for short trades.
2. Here, prices fell, and MACD moved below both the zero line and its signal line. That was our cue for a downtrend. A sell stop order was placed at the lower Bollinger Band to anticipate a short trade.
3. After the MACD had confirmed a downtrend, a bullish outside bar formed but had little follow-through. It was the last bullish attempt before prices broke down further.

Finally, as prices pushed through the lower Bollinger Band, our sell stop order was triggered. And we have a winner.

LOSING TRADE

A Simple Day Trading Strategy – Losing Trade

Just like the first chart, this is a 4500 tick chart of the S&P E-mini contract on a full Globex session.

The simple day trading strategy triggered a short trade at the red arrow. It was the worst entry point for us.

Let’s break this down and try to understand what was going on.

1. The day started off congested as shown by the increasing tails and smaller bodies on each candlestick. The constricting of the Bollinger Bands was another indicator that volatility was dropping.
2. A congestion inevitably leads to a breakout. The three consecutive red bars was the breakout from the congestion. At the same time, MACD confirmed a downtrend for us, and we entered short at the lower Bollinger Band. (red arrow)
3. However, the downthrust punched out a lower low that was not supported by the MACD momentum. That was a bullish divergence that warned us against taking this trade.

Ultimately, this breakout downwards turned out to be a morning fake reversal. We entered short at the low of the day.

What could be worse? (Not having a stop could be worse.)

REVIEW – A SIMPLE DAY TRADING STRATEGY USING BOLLINGER AND MACD

Using only two indicators and two simple steps, this is indeed a simple day trading strategy.

I have tried it on different time frames and found this day trading strategy to be surprisingly robust for catching breakout trends.

By demanding that the MACD rises not only above its signal line but also its zero line, this day trading strategy can locate short-lived intraday trends. This application of MACD is starkly different from Gerald Appel’s original basic MACD trade.

If you want to restrict yourself to only high probability trades, take setups that occur after MACD first crossed the zero line. This rule will keep you in fresh trends and not the maturing ones that are more likely to reverse.

There is a significant caveat about the exit strategy. I did not follow the exit method recommended by Markus Heitkoetter as I wanted to keep things simple.

He used a certain percentage of the average daily range of the past seven trading days to determine his stop and target size. It is a sound approach based on volatility, but it increases the number of parameters involved.

You have to choose how many days to include in your average trading range and the percentages to use for your stop and target sizes. You also have to ensure that these parameters are consistent with your trading time frame. Like what Markus Heitkoetter pointed out, he updates the tick setting for the instruments they regularly trade to account for changes in market volatility.

So, unless you can keep up with adjusting those parameters, you might want to consider a more straightforward way to exit your trade.

-------------------------------------------------------------------------------------------------------------------------------------------------------Risk Disclaimer

All information is for educational purposes only. Nothing should be considered as a buy or sell recommendation. The risk of loss in trading stocks, commodity futures and options is substantial. Before trading, you should carefully consider your financial position to determine if trading is appropriate. When trading stock, futures or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. This email may is a paid advertisement. It could be for a product or service that is not offered, recommended or endorsed by Stock Alphabets and neither the company nor its affiliates bear responsibility or control over the content of the advertisement and the product or service offered. Proceed at your own risk