5 January 2018 (8:39 AM EST)
- U.S. stock markets have broken out of their range. How will it benefit day traders?
- How do stocks behave in a range bound trend? What will reap bigger profits in such markets?
- What will be day trading strategies in U.S. stock markets now?
- How to day trade Dow Jones?
In last two sessions, U.S. stock markets broke out of their range bound trading pattern and started a new uptrend, which should help day traders lock in more profits. It will also require changing their day trading strategies.
In range bound markets, day traders have to look for smaller profits between support and resistance levels, while in a trending market (whether up or down), day trading strategies can look for bigger profits by trading with the long term trend and even carrying forward positions to further sessions (swing trading).
Let us take example of Dow Jones to see how this index, along with broader markets, had been trading range bound, how it broke out of that range and how day traders can take advantage of its new uptrend.
You can see in this Dow Jones chart ( set at 15- minutes time interval), its previous range bound trading pattern and then a breakout from that range two sessions ago:
A closer look of this same chart section revels how the index had failed twice to break out of this range (when the index opened high and then immediately fell back within the trading range), and then it opened within the range and swooped out of the range. After that, this range resistance turns into range support and Dow Jones bounce back from this new support twice and continues to climb up.
Now, 20-Day Moving Average is behaving like its trend line and every time the index sees intraday correction, this trend line sends it back higher.
How To Trade Dow Jones Intraday:
As long as this uptrend continues, day traders should take advantage of its trend line and buy on dips. Till this trend line remains intact, the index will remain in an uptrend. Once the price falls and stays below this trend line, then minor correction will take place and the index may once again become range bound. At that stage, day trading strategy will once again return to using pivot levels and pivot trading.
You can check important pivot levels (support and resistance level) for Dow Jones, S&P 500, Nasdaq 100 and Russell 2000 on our Day Trading by Pivot page.
Remember, Moving Averages do not work during sideways or range bound trend. Support and resistance levels become the best intraday trading tools in those trading conditions. In trending markets (like now), these levels still provide good indication of trade entry or profit booking points.