A runaway trend is when the demand in an uptrend is so strong that it overwhelms demand or, in a downtrend, the supply overwhelms demand.
When the supply-demand imbalance is so slanted to one side, a trend will pick up momentum leaving virtually no consolidations or retracements.
The majority of trading techniques start by evaluating whether a trend is up, down, or sideways.
The next part of the evaluation is determining how to participate in the trend at turning points within a consolidation or retracement.
One of the most frustrating things for a swing trader or day-trader (the difference is the time frames used) is recognizing a strong trend but cannot participate.
As professional investors and traders, we do not enter a position; especially, a fast-moving trend without a plan to enter, manage the position, and money management.
In this week's MT Live on Wednesday, we will review how to trade such a trend - Register Here
These setups can be used for Swing Trading or Day Trading
In the chart above at the far left, you can see that prices broke out above a sideways consolidation close to the rising simple 20-Moving Average.
Once we recognize that strength and believe that prices will continue to move higher, we wait for a price pattern that signals a turn or continuation.
At point A, prices pulled back to the consolidation that they broke out from in the 20-MA. Once the candlesticks turn from red to green (a bullish reversal), our Master Trader plan will be to buy above the green bar's high.
Once in the position, we can manage based on Bar-by-Bar Analysis and new turning points that create pivots.
The chart above has Pivot Highs (PH) and Pivot Lows (PL) marked as a bar with three lower highs to the left and right, or three higher lows to the left and right.
At point B, prices again pulled back to the rising 20-MA and formed a reversal bar. This one formed with a Bottoming Tail (BT) and then an Inside Bar (a bar that trades inside the high and low range of the prior bar).
The entry is the same as before: which is once prices trade above a prior bar's high.
Since prices gapped up, an intraday entry could be used -- or Advanced Money Management Techniques would be required for a swing trade entry.
At point C, prices formed a lengthier consolidation that provided a breakout pattern entry.
Notice that the red candles within the consolidation did not follow through lower. This concept of "not following through (NFT)" is a bullish trend confirmation.
At point D, this consolidation of the downward sloping lower higher and lower low is often referred to as a Flag Pattern.
A Flag Pattern is one in which it creates new support after a move higher.
We have reviewed for different entry points on a trend that provided multiple entries, and there were others, but I’ve marked these to show you a few examples.
Runaway Trends Don’t Form These Price Patterns
In the chart above, we see that once prices began to move away from the 20-MA, they did not form new Pivot highs or Pivot lows.
Master Trader Tip: A lack of pivots is one way of recognizing a "runaway move."
Prices did not pull back, and they did not consolidate for any length of time to form a reliable breakout pattern.
Without a plan "to get on board," the momentum move shown will leave you behind watching as prices accelerate higher.
That plan will incorporate the use of Continuation Patterns, Multiple Time Frames, and Bar-by Bar Analysis.
If you’re interested in learning more about continuation patterns, multiple time frames, and bar-by-bar analysis, join us this Wednesday at noon ET.
This free MT Live event will focus on How to Trade Continuation Patterns.
We hope you can make it to the live session, but if you can’t register anyway, you will get the replay of this great educational event.
Master Trader and You Building Your Financial Future Together!
Happy trading! If you have any questions or comments, please e-mail Greg Capra at Greg@mastertrader.com or Dan Gibby at Dan@mastertrader.com
