Trade with the Prevailing Trend

Live Trend Strength Meter

SPY position relative to key moving averages (Live data when available)

Why Trend Direction Matters

While the bot can trade reversals, its highest probability signals occur in the direction of the market's primary daily trend. Don't fight the overall market direction. The trend is your friend until the bend at the end.

• Higher Win Rate: Trend-following trades have 65-70% success rate vs. 45-50% for counter-trend.
• Better Risk/Reward: Trends can run further than expected, offering larger profit potential.
• Momentum Edge: Institutional money flows in the trend direction, providing tailwinds.

Identifying the Daily Trend

Use multiple timeframes to confirm trend direction:

• Higher Highs & Higher Lows: Classic uptrend pattern. Each pullback holds above the previous low.
• Moving Average Alignment: 20 > 50 > 200-day MAs = strong uptrend. Inverse for downtrend.
• Price Above/Below Key MAs: SPY holding above 20-day MA = bullish bias. Below = bearish bias.
• Volume Confirmation: Rising prices on higher volume, falling prices on lower volume = healthy uptrend.

Trend-Following Entry Strategies

Time your entries within the established trend:

• Pullback to Moving Average: In uptrend, buy dips to 20-day MA. In downtrend, short rallies to 20-day MA.
• Breakout Continuation: New highs in uptrend or new lows in downtrend often continue the move.
• Flag Patterns: Brief consolidation after strong moves often leads to continuation in trend direction.
• Support/Resistance Flips: Old resistance becomes new support in uptrends (and vice versa).

When NOT to Trade Against Trend

Avoid these counter-trend scenarios:

• Strong Momentum Days: SPY +/-2% days often continue in that direction.
• Earnings Week: Major earnings can override technical levels and extend trends.
• Fed Decision Days: FOMC announcements create sustained directional moves.
• End of Quarter: Institutional rebalancing can create multi-day trend extensions.

Trend Reversal Warning Signs

Watch for these signals that the trend may be ending:

• Divergence: Price makes new highs but momentum indicators (RSI, MACD) don't confirm.
• Volume Decline: Trend continues but on decreasing volume—shows weakening conviction.
• Failed Breakouts: New highs quickly reverse below prior resistance—distribution pattern.
• Moving Average Breakdown: Clean break below 20-day MA often signals trend change.
• VIX Spike: Sudden fear spikes can end uptrends abruptly.