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Technical analysis is largely impacted by some very important factors. One of those very important factors is the type of the market day. Analysing the type of the market day correctly can give a potential edge to any trader who is actively trading in either stocks, indexes, cryptocurrencies, forex, derivatives etc.
Today, we will be discussing ‘6 different types of days’ we might witness across the market. Please note that these 6 days are significantly different from each other. These patterns are not sacrosanct, meaning they should only be used as a guiding factor and not the exact determiner for any particular trade.
Types of market days:
- Trend day
- Double distribution trend day
- Typical day
- Expanded typical day
- Trading range day
- Sideways day
The ‘Trend day’ is usually an aggressive trading day with either a clear bullish or bearish momentum. On a bullish Trend day, the opening candle is usually the day’s low, and the market then gradually moves higher throughout the day. On a bearish trend day, the opening candle usually marks the day’s high and the market gradually declines throughout the day.
The Trend day is usually preceded by a quiet day with range bound movements. If spotted correctly, gives the potential of a huge profit. Such trending days occur rarely, and might happen only a handful of times in a month.
✔ Double distribution trend day
The ‘Double distribution trend day’ is a bit complex and a very reliable method for placing aggressive trades. That is why institutions and professional traders use this strategy to the fullest.
It is usually characterized by the indecisive nature at the beginning of the session. On such a day, the market initially follows a tight range bound path. It is also known as an initial balance. The initial balance high, or IBH, and the initial balance low, or the IBL, form the reference points. The Double Distribution trend day begins on a calm note. Gradually the price breaks free of this range and trends towards a new value propelled by buyers or sellers. After the momentum has calmed down, the market forms another range-bound movement. This is where the term ‘Double Distribution trend day’ comes from, as the bulk of trading activity happens at either extremes.
A narrow initial balance is easily broken whereas a wide initial balance is harder to break.
It is characterized by a sharp rally or decline early during the trading session. It could be as a result of any impactful macro-economic news. The market participants then push the price back in the opposite direction by taking counter positions. A wide range created within a very short span of time earlier during the trading session essentially causes the market to trade within this range later on.
✔Expanded Typical Day
It is similar to that of the previously discussed ‘Typical Day’. However, the initial price movement is not as volatile and therefore, the initial balance is not as wide as a ‘Typical Day’. This leaves the opportunity for the market participants to break this narrow range. Once this range is broken either by the influx of selling or buying pressure, the market then makes a strong move towards that particular direction.
In this case, the initial balance is wider than a Double Distribution Trend Day but less wide than the ‘Typical Day.’
✔Trading Range Day
Buyers and sellers are actively pushing the prices back and forth . Responsive buyers and sellers will attempt to enter at the extremes, pushing the prices back to the original point. This type of day gives amazing trading opportunities to both parties.
On a ‘Sideways day’ price does not move much on either side. It is a sort of indecisive day for both parties as they refrain from placing aggressive directional trades. This sort of a trading day is usually loved by option sellers who bag profits from the time decay as a result of the non-directional muted movement.
Although the Trading Range Day and the Sideways might seem similar, they are significantly different from each other. The presence of buyers and sellers are pretty high on a ‘Trading Range day’ whereas the same does not happen for a ‘Sideways Day.’
“Secrets of a Pivot Boss” by Franklin O. Ochoa is a great book that delves in depth into various aspects of Technical analysis .