In my humble opinion, trading trends on smaller time frames is a recipe for disaster. I have lost a lot of money trying to day trade trends. Trend following strategies will only work when market trends the whole day without any consolidations. That is only on type 1 trend days. But this rarely happens.
Market moves in short term ranges. For me a trend is successive higher or lower ranges. This change in perspective totally changed the way I traded the Markets. I have written about this concept here, here and here.
I will try to explain this concept a little more. Do not expect the price action to be picture perfect. Hunting for the patterns may not work. But I feel the concept will be very helpful in your trading, especially if you are day trading.
Look at the picture. It is the day’s price action. Market trended from A to F and reversed. Now let us see how a trend trader might have traded it. Market was ranging between A and B. He enters on the breakout of B. Price goes up to D and consolidates between C and D. This trader brings his stop below C. A Complex pullback or a Breakout failure stops him out and market moves up. He again enters at D on breakout and gets stopped out at E. After this he will most probably miss the reversal entry at G.
As range traders we are trying to do it differently. We try to sell the range highs and buys range lows. In the above example we are trying to enter on the BOF of point A and ride it till point D where price move exhausts. We exit at D and allow the market to consolidate. Then we look for a with trend entry at C. Another BOF at C may take price to F where we again exit. Once price breaks below G we go short.
Trend/Breakout traders most probably end up capturing B to C and D to E, where as we attempt to capture A to D and C to F. If it work well we will end up capturing more than the whole trend, that is A to F. Further we try to fade the range extremes for small gains. Most of the time we will be able to catch the move down
Our success as a trader will depend on our ability to transform such ideas and concepts into actionable trading tactics and of course on our ability to efficiently execute such tactics. Unfortunately creativity and imagination is in short supply.
Hope I could convey the concept well. If you have any doubts feel free to ask.