Working patterns for day trading on the US stock market

In this article, I would like to tell about several patterns for intra-day trading on the US stock market. These patterns worked and continue to work today. I would like to emphasize at once that the patterns discussed below work well in the stock market, not in the commodity futures or currencies market. The nature of the movements inside the day in the futures market, in my experience, is quite different. For those who are just starting to learn trading and who want to try themselves in intraday trading, I would advise the American stock market. It has a large number of tools, and every day there you can find papers with simple and understandable movements. Take one, two patterns maximum, the nature of which you understand, and look only for them. So, let’s move on to the patterns.

1. Pattern “first pullback at 10 o’clock”

This is my most favorite pattern, which always brought money. I had periods when, trading only it, I did not have any unprofitable trades within a month (doing daily 1-3 trades).
This pattern involves the search for active shares in which the trend movement begins or continues. In accordance with this model, in the first 30 minutes after opening of the market, the stock makes the first move at least for 3-4%. Further, at 10:00 – 10:30 we are waiting for the pullback, the formation of support and go from support in the direction of the trend, joining a strong player. We set the stop for the pullback. Trade of trends is the simplest and most reliable transaction.
Share of Intelsat S.A. (I) 13.07.2018 after the first pullback at 10:10 is fixed over a round number – a level of $ 20:

Pattern first pullback at 10 o'clock

Stock I, traded on the NYSE, makes movement of 1 dollar from opening. For a stock valued at $ 20 this is 5%, which means that there is a buyer in it. We are not engaged in predicting movements. We see the movement and its direction already when it exists, after the major player showed himself.
The pattern of “first pullback at 10 o’clock” can combine different signals. This can be a pullback to the levels of high / low of the previous day, closing price of the previous day, premarket levels, testing the range of opening the day, continuing the trend for the second day (Second Day Play). It is quite often to open a paper with a strong gap. The price of opening, limits of gap are also levels. We will look at some examples with this pattern and additional signals below.
The share of Bank of the Ozarks (OZRK) on 12.07.2018 is opened with gap down and further downward movement continues, which indicates that aggressive sellers are present in the stock. Even in this case, when the levels are too far and the pullback seems to hang in the air, the character of pullback can give information. Sellers are in a hurry to get out, the pullback is very small:

First pullback at 10 o'clock

In the stock Zogenix, Inc. (ZGNX) 13.07.2018 the price makes the retest of high of the previous day at 10:25:

Retest of high of the previous day

In share Akorn, Inc. (AKRX) 07/16/2018 you can watch several signals. Continuation of the trend on the second day, retest of low of the previous day, retest of the range of the day’s opening on the first pullback at 10:40:

Retest of low of the previous day

Retest of levels is an important signal on which are based the considered patterns. The meaning of the retest is that large players weaken the pressure on the stock, return the price to the trade levels that previously had volume, in order to try to score there yet. They check to see if anyone else has remained at the level. In this case, can appear stops on pullback or in the trade, in order to gain additional volume, the price makes the squeeze, on the chart you can see the shadows on the pullback. Three screenshots that were above, show these small shadows on the pullbacks.
Another important additional signal is presence or absence of volume on pullback or in trade. Pay attention to the volume in the AKRX stock. 13.07.2018 at closing there was volume, the stock was redeemed and raised the price to $ 18. On 16.07.2018 the opening price is lower than the closing price, there is no volume in the trade, there are no buyers, this is evident from the behavior of the price, which starts to fall. Next is a pullback to $ 17.50. At 10: 50-10: 55, the volume in the trade is almost disappearing, and the price begins to look for new levels, on which there is a volume where there are buyers. Retests, trade area, that don’t have volumes, is a good signal. Price is forced to look for a point where this volume is, and move from volume to volume, to points of efficiency, where it would be profitable to trade a large volume. In case of AKRX shares, volume starts to appear below $ 17. In the shares of Intelsat S.A. (I) on the very first screenshot on pullback, you can also see the volume drop.
Papers for trading are selected from the filters and sheets that we prepared before opening. On the sheets may be stocks that started moving yesterday, and we are waiting for the continuation of the movement, or the day before yesterday (there is even a pattern called “traffic on the third day”) when the stock was standing, gathered itself up to continue the trend or start a turn. One of the difficulties of trading in the US stock market with one or two patterns is a large number of stocks for analysis. In the case of pattern “the first pullback at 10 o’clock”, there is not enough time to find papers, analyze them, read news, observe the feed of deals, place orders. In part, it can be solved by teaming up with people who trade in the same style and share information in chat.

2. Pattern “continuation of trend at 11 o’clock”

This pattern is a bit more complicated and involves more options than the “first pullback at 10:00” pattern discussed above. The pattern of “continuation of the trend at 11 o’clock” is, as the name implies, still a trend trade. There is a first movement in the stock, followed by a pullback or consolidation is formed, in which (or when testing it) we enter the direction of the trend continuation. The first pullback can be similar to a reversal, when the price rolls back 30-40% of the first move, or in the trade can make a squeeze to drop those who sit on the trend. In general, there are options that are better to consider with examples.
The stock of Kulicke and Soffa Industries, Inc. (KLIC) on 12.07.2018. In this example, the “11 o’clock” pattern looks like the pattern “the first pullback at 10 o’clock”, only pullback and pretrade formed around 11 o’clock:

11 o'clock pattern

Trend movement from the opening confirms the presence of the buyer. Also pay attention to the reduced volumes on pullback.
In the share of Sonoco Products Company (SON) on 19.07.2018 we see the first movement, consolidation, a small squeeze, which I marked with a red arrow, and further continuation of the trend:

11 o'clock pattern squeeze

In the share Philip Morris International Inc. (PM) on 20.07.2018 in addition to being a continuation of the movement on the second day, we see at the opening another signal, it is called “red to green”. 20.07.2018 the stock was opened below the closing price of the previous day, but in the first five minutes the price overcame the closing level. The first powerful unidirectional movement shows that there is an aggressive buyer in the stock – this is the confirmation we need. Then there is a small pullback and consolidation is formed in the form of a triangle. The stock closed the gap of the previous day, and at 11:00 the price is consolidated above the high of the last day, which is also a signal. The volume in the trade is lowered:

11 o'clock pattern high of the last day

In the share of Tandem Diabetes Care, Inc. (TNDM) on 12.07.2018 you can also observe the triangle:

11 o'clock pattern triangle

Pay attention to the volume decline in consolidation around 11:00.
In share of Intuitive Surgical, Inc. (ISRG) on 12.07.2018 there is a continuation of the trend on the second day and the so-called “mirror level”. At 11:20 the price tests the upper limit of the opening range. Test on reduced volumes:

11 o'clock tests of the opening range

In share Church & Dwight Co., Inc. (CHD) on 13.07.2018 we see a trend movement from the opening, which indicates the presence of the buyer, consolidation, attempt to reverse (false turn). Further, the paper is returned to the upper boundary of consolidation and at 11:25 it makes a new high of the day. The paper goes up until the close:

11 o'clock pattern consolidation

The pattern “continuation of the trend at 11 o’clock” may look like the first pullback in the 11-hour area, and as the second pullback, as a pretrade close to high/low with or without a squeeze.

3. The “trend at closing” pattern

This pattern, in my opinion, is less common. You need a strong trend market or a season of reports, then such pattern will occur more often. Like the first two patterns, it also suggests trading in a trend. In this pattern, the stock makes the first strong movement from the opening, then in the afternoon it trades in a range, not strongly rolling back, at 13:30-14:00 the price goes beyond the level of the pretrade (well, when it happens with the increase in volumes), for high or low, makes a retest and until the end of the day goes on a trend.
Share of Intuitive Surgical, Inc. (ISRG) on 12.07.2018 makes a new high at 14:25, and then tests the level:

Trend at closing pattern

Share Nexstar Media Group, Inc. (NXST) 16.07.2018 test low of the day at 13:40:

Trend at closing test low of the day

Trinity Industries, Inc. (TRN) share on 19.07.2018 has consolidation above high of the day at about 14:00:

Trend at closing consolidation above high of the day

The pattern of “trend at closing” is not my favorite, in contrast to the patterns “10 hours” and “11 hours”. It is less likely to meet, and to be honest, I’m always less certain about it. When you see how much the tool has already passed from the opening, then doubts about how much it can still pass are creeping in. But the pattern is quite working when the market is right.
Three patterns that we discussed, cover most of the trading session’s time. For beginners, I would advise to concentrate on the first two patterns, look for papers just for them. I also would not like to advise you to make a sheet of several active securities and trade these two patterns only for a limited list of shares. This is tempting and much easier to work with, but you need to learn to look for papers, work with filters, and most importantly, you need to learn to work with papers that have different character movements.
Add to the two patterns signals that reinforce the deal: retests, levels (especially from the daytime timeframe), the mirror level, the points from which strong movements began, the continuation of the movement on the second, third day, red to green, green to red, absence of volume on pretrade and on pullbacks, the ranges in which there was volume, squeeze (false takeaway), compression of volatility (triangle), exit from consolidation and its test, news, and I guarantee that you will earn money. Provided, of course, that you comply with the rules of risk management. Put a valid stop, a limit order on the output, based on the ratio, for example, 1: 4 and sit, wait, that will be executed first, in parallel look for new deals.
Also, if you are interested in day trading, I would recommend you this article: “Day trading course review by SMB Capital“.

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7 Comments

  1. I’m curious as to why you refer to stocks (equities/corporations/etc.) as a “papers?” I find your usage of the word “papers” in this manner very interesting.

    1. This is jargon. In some European countries. Of course, it is better to write “stocks”.

  2. I do not know what you mean when you say “shadows on the pullbacks.” What does that mean? If you would, could you explain further? Thank you very much!

  3. How is the “squeeze” evidenced? I do not see a “squeeze.” Could it be doji candles or hammer candles?

  4. How is the “squeeze” evidenced? I do not see a “squeeze.” Doji candles? Hammer candles? Thank you.

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