Daytrading signal #1 - a new high of the day

A new intraday high is the center of many daytrading systems. It comes in different flavors:

  • After the first half hour of trading in the stock market a new high is the signal to enter the market. The assumption here is that the first 30 minutes have a more chaotic behavior and that it pays off to wait for the market or the stock to leave this random phase behind. Movements after this phase are considered indicative of the day's trend, preferably in upwards direction.

  • The same but only for stocks or futures that gapped up. A gap is clearly a sign that something has changed. But the market doesn't understand necessarily in the very first moment what has happened and how it changes the value and thus the price of something. That is why after gapping up the price may stay there or even fall back, but often it starts to move ahead in the direction of the gap after a while. Many times such gap induced by e.g. overnight news will be the start for a long-lasting trend.

  • Jumping on a new day high not after but within the first half four of the stock market session. This is the fast track of making or losing money. It may work depending on your skills, because often the day's start is the time of the most violent trends. Be prepared to pay a much higher slippage when entering shortly after the open and protecting yourself with the necessary stop loss for such operations.

  • Some traders like more to buy into new highs in the second half of the day. At times of general euphoria this is a trading pattern that amazingly often works. No one wants to miss the train and especially no one wants to go short into the next trading day. Finally the market closes at the high of the day.

  • On the other hand if the market tone is bullish over several days it is better to not wait for a new high in the afternoon, but to go early with the flow and have a stop loss of the day's low. That is of course a wide stop loss for daytrading, but statistically a reversal day is less likely relative to a runaway day in optimistic times. So hitting the market at a new high after e.g. half an hour or even within the first minutes will often catch a bigger move in bull markets.

  • Plan B for missing the breakout is to hope for a retracement either back to the original break line or below that but not below the last ascending local low of an intraday trend or the last descending high for short trades. Alternatively some traders look for a retracement back to the Fibonacci fractal which is with its 38% a rather strong pullback. The nature of a cyclical market movement means that it is generally counterproductive to hope for the price pulling back, because in that case the trade is not as good as it once was. However, because the market knows that many traders are looking for new highs, the market punishes them with letting prices go back beyond their entry, tempting them to cover with a loss. The market punishes someone? Yes, of course! Contrary to the popular belief that the market is not after you or anyone personally, it is. There are better capitalized players who play these games with you, and it is of course the market's efficiency. Many smart traders, all giving their best to beat the other guy, assure that traders who are just average have to pay the bill.


Forex   Under the millstones of the banks
Futures  Hoping for the trend and finding chaos
Options   Above average? You will still lose!
Stocks   The negative-sum game for investors