This post will layout the full process from the inception of a trade thesis the whole way out to execution.

Phases of the Market

Step 1. What is the Macro Trend?

    -The market is able to have 3 possible macro trends. These all exist on a monthly/yearly timeframe. This is how to gauge the overall macro large sums of money that exist in the market. If you think for a moment about how these events are always cyclical and the market will always have phases of bull and bear. If we have these large yearly events that cause uptrends and downtrends that are significant and strong then you can imagine that how much money it would take for the entire market to have a 10% or even 20% move in 1 year. It would take trillions of dollars to move the market that much. If there is that much money going in one direction would you rather follow it or fight it? 

        1. Uptrend - Higher lows, Higher highs

1yr:1d (2020-2021)

        2. Downtrend - Lower lows, Lower highs

1yr:1d (2021-2022)

        3. Consolidation (Lower high, Higher low, + Higher low, Lower high)

1yr:1d (2015-2016)

    - These 3 options exist on many different levels depending on what timeframe you use, BUT the most important timeframe for macro information is the daily. 

    A. When the Macro trend is idenfied then we must understand where the most opportunity will lay. IF we are in a downtrend then shorting will statistically be easier throughout the entire year and forseeable future until that pattern is broken. The opposite is true with Uptrends. In consolidation trading will become extremely difficult because direction is forgotten and misleading. When consolidation is present we must be open to more of a range style of trading where a mean is established and reversion is expected. 


STEP 2: What is the Micro Trend?

    A. Similar to the last idea, we must now identify where the trend is within a smaller timeframe. When daytrading we expect to take profits quickly and hold trades for short periods of time so that we can create sustained cashflow in our accounts. This does not happen if you are holding trades for multiple days. To clarify, these are 2 EXTREMELY different styles of trading and should be treated as such. Since we are doing daytrades we must identify trends that exist WITHIN the previous MACRO trend so that we can gain a better understanding of the direction of the market.

    B. These 3 trends vary heavily depending on what the Macro Trend is. Since we are currently in a Bearish Downtrending Macro market. We will analyze all of these trends below with the idea that the outflow of money in the market will create a continuous downward spiral in stocks until the pattern is significantly broken. It will seem hard to just think "the market will continue lower forever until the trend is broken" but that is an ESSENTIAL aspect of this trend trading strategy. If you do not trust the trend BLINDLY and you believe that we will somehow become bullish out of nowhere then you will LOSE consistently. You must blindly trust and follow the trend no matter the circumstances.


Step 1: Macro Bear Market identified

Step 2: Idenfity Micro Trend

1. Uptrend

    - Every green zone is an uptrending time within the market. We are creating higher lows and higher highs in all of these market scenarios. In these times it is EASIER to go long BUT it must always be remembered that just because we are going long now does not mean the MACRO trend has changed. Eventually (so long as we are in a macro bear market) we will find a lower high and attempt to make lower lows to continue that prevailling macro downtrend.

    - Uptrends are very difficult when traded in a bear market because everyone is waiting for that next lower high to occur so they can short. In these uptrends we can confidently say that they exist mostly so that larger players can liquidate large short positions and prepare for the next lower high that will occur about a month or 2 out from the current timeframe. When you trade in an uptrend you usually feel like "this will never end" because a month of long biased trading is very hard when the prevailling money is outflowing from the market. It is IMPERATIVE that you do not forget that eventually a lower high will be made and when it is made that is when you take risk and you put it to the maximum. 


2. Downtrend

    - Do you notice how there are many more instances of Downtrends in the macro bear market than there are of uptrends? That is because we are following that massive outflow of money and when it begins it is hard to know when it will stop. 

    - During these times it is EXTREMELY IMPORTANT to take maximum risk. When you have the macro and the micro converging then you have a very high probability of making very high R trades that are skewed massively to the downside. This cycle and phase of the market is where you make 99% of the money throughout the year. If this is known and risk is adjusted according to how deep we are in each of the micro cycles then we really can get a very clear picture of where the larger players lay.

3. Consolidation

    -These phases of the market are called consolidation because they are exactly that. They do not continuously make higher lows and higher highs as well as not making lower lows and lower highs. The market uses these phases to charge up and create pain for the next move higher or lower. These areas are the hardest to trade and require risk to be taken off heavily. 

    - When we are in a ranging are that is creating a charge for the next larger move we must be taking risk off. Risk off means that maybe we take 1 trade and let the market go or maybe we just take no trades whatsoever and be patient for the signal to take the next move. In general these consolidation phases can occur for many days back to back but its usually no more than 2 weeks. 



    -There are only 3 ways to trade a macro downtren: Uptrending, Downtrending, or Consolidation.


    - Macro Bear + Micro Downtrend

When the market is gifting us this phase of combining a macro bear market WITH a micro bear market. We must be taking full advantage of the moves. This is a time where taking shorts will almost always yield a profit. If and When these times occur we are required as traders to size up exponentially as well as hold trades for bigger moves. 

    - Again: Macro: Downtrend; Micro: Downtrend

    - RISK ON 

    - This is the moment we look for shorts to continue lower for multiple 10+ point days (futures)

    - See how we consistently make lower highs and lower lows back to back to back for 4.5 days straight? We could enter small positions in swing portfolios to the downside in this phase while also taking very high probabiltiy scalps in the daytrading arena. In these moments where the market gifts you with easy money YOU MUST TAKE ADVANTAGE OF IT. It is one of the most important aspect of daytrading that you must maximize opportunity when it is given or you will have a very hard time being profitable. Too often in my career have I gotten blind to price action and completely miss incredible opportunities just because I get stuck trying to go long in a massive micro downtrend. 


    - Macro Bear + Micro Uptrend

    - RISK OFF

    - This trading scenario is very very difficult. When we are in a large macro bear market, going long will inevitably be extremely difficult to do. Usually it is best to fully leave it alone or find very quick scalps to just get by while waiting for the next leg down. There are ways to trade it but it requires slightly more luck and timing than going short. In general it is almost always best to fully leave the market alone when it is doing things like this. 


    -Macro Bear + Micro Consolidation


    - Easier than trading the Uptrend micro but still very difficult. In general the easiest trade in this style of market is to still go for lower highs on days where it is applicable. You can take higher lows in expectations of a ranging market which works decently well but it is going to be very difficult no matter what circumstance and scenario you place on it. 



 - All trading scenarios are extremely difficult no matter what kind of market or style is going on so it is very important to know when you are being lucky compared to being accurate. It is easy for anyone to become valid in the market on any random basis just because the market is VERY random at all moments to someone who is untrained. This means that pretty much on any day you could go long or short and make money but eventually you always end up still breakeven or unprofitable. This is what I do currently. I have long green streaks followed by longer red streaks and I go long at the end up uptrending cycles and I go short at the end of downtrending cycles. This is the definition of a retail noob. A professional finds the edge FIRST, then implements it ONLY when that edge if apparent. The most important part of knowing your edge is the fact that you must also know that edge only exists in certain scenarios. It is not something that you have on a daily basis unless you have very many years in the market following a select few tickers. It is not unachievable but even those people who can be green daily will have days where they make 10x what they normally make only because they understnad that today is the day where going short with the macro and micro trends are going to offer much higher R and much higher win %.