Entering Existing Trends

by Gail Mercer, Hawkeye Traders | April 6, 2009

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Certainly, if a trader knew the perfect entry point or the perfect exit point, trading would be easy! Although the best entry points are the market reversals (first signal), unfortunately, most traders either hesitant on entry or miss the entry point altogether. Furthermore, for traders who exit at the end of the day, the market reversal may have come the day before. So how does a trader enter these existing trends? There are several different ways to enter existing trends, including a change in volume, a hook pattern, or by using the Hawkeye RoadKill technique. However, keep in mind that you should not chase the trend all the way up. What do we mean by this? Instead of entering on all the volume changes or hooks or RoadKill opportunities, limit your entry opportunities to the first one, if scalping, or the first two, if trading intra-day or long-term.

Change in Volume:

Volume is the measurement of buyers and sellers in the market. More buyers than sellers, price goes up (demand is higher than supply). More sellers than buyers, price goes down (supply is higher than demand). However, markets do not go straight up or down. Therefore, we look for a pause, as indicated by the volume indicator, to enter an existing trend. A good indication of a market pause is during an uptrend, price bars are increasing but buying volume decreases, which causes the volume color to turn to white, possibly even red. Then green volume returns to the market and prices continue to increase.

ES 5-Minute Chart Showing Volume Change

The above chart on the ES 5-Minute Chart for March 31, 2009 shows the market was in an uptrend from the previous day. We also notice that the market opened with neutral volume (white volume bars), however, buyers then came back into the market. You can then enter a long position at $788.75.

Using a Hook Pattern:

Another way to find your entry is using a Hook Pattern. Hook Patterns are identified by looking at the previous close compared to the current close. In an existing up trend, a close down followed by a close up is a hook for long entry. In a downtrend the pattern should be opposite, ie a close up followed by a close down. The following image of the ES 5 minute chart shows you a hook pattern, and your short entry was on the next bar after the hook, at $828.50

ES 5-Minute Chart Showing Hook Pattern

Hawkeye RoadKill

Although the volume change and Hook pattern are both good entry points, the most successful entry in an existing trend is by using the Hawkeye RoadKill methodology. The Hawkeye RoadKill methodology is defined as when there is an established trend on the longer term chart and the shorter term trend turns white, possibly even the opposite trend color, then returns to trend color of the longer term chart. For example, the longer term chart is green, the shorter term trend turns white (turning red would be even better) then the shorter term trends turns back to green giving you Hawkeye ROADKILL.

However, now instead of monitoring the two timeframes simultaneously, we have developed the new Hawkeye RoadKill indicator, which shows not only when RoadKill occurs but also when a new trend is established for both aggressive entries and initial entries.

In the image below of the ES 3-Minute chart for April 2, 2008, the dark green dot indicates a new trend is established (the longer term chart was white and then went green). However, perhaps you missed the entry. Your next two entry points are indicated by the two big, bright green dots indicating Hawkeye RoadKill has occurred between the short-term chart and the long-term chart.

ES 3-Minute Chart Showing the Hawkeye RoadKill