Info!! How Produce Nosotros Know A Tendency Is Ending?

A savvy developing trader posed this inquiry to me, together with it deserves a thoughtful answer.

My reply: Think inwards damage of structure.

From earlier the open, I raised the possibility that today could hold upwardly a tendency day to the upside. Even when nosotros were selling off prior to the Noon CT Treasury auction, I did non abandon this view.

By the afternoon, however, I posted to Twitter:

1:11 PM CT - Note rel weakness inwards NQ, XLV, XLP. Watching how nosotros merchandise approximately vwap, which is approx 988 inwards ES

I was seeing weakness across several sectors--something non consistent amongst an upside tendency day--but I was likewise setting a structural measure for the market.

On an upside tendency day, nosotros should consistently merchandise inwards a higher house the day's volume-weighted average toll (VWAP) together with that VWAP should hold upwardly rising. During moves toward VWAP, nosotros should run across selling book dry out up. That was what happened through much of the day. Market dips largely stayed inwards a higher house the 988 VWAP inwards ES and, amongst each dip, book dropped together with book hitting bids declined.

A picayune later 2:30 PM CT, however, nosotros saw selling book rising every bit nosotros approached (and ultimately breached) VWAP. Instead of offering support, VWAP served every bit a breakout level.

Trend days don't oscillate approximately VWAP; that's what make days do. If a tendency twenty-four hours fails, it typically does together with thence past times reversing together with becoming a make day.

By thinking structurally, nosotros tin remain inwards trends together with ride our winners, precisely likewise choke when our upside expectations are non met. Kudos to readers who commented on the weblog together with caught the emerging weakness inwards the early on afternoon, including relative weakness inwards NQ. Catching the failed attempts to ready novel highs inwards the afternoon led some vivid trading lights to net from the deed dorsum through VWAP.

Sweet.
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