CHART CHAT
On The Run
In this edition of Chart Chat, we will discuss large stock price movement periods known as Run Days. A “Run Day” is simply any day where the price of a security experiences an unusual move significantly above its normal Average True Range (ATR) in either direction. As covered in Chapter 5 of our publication When to Buy and When to Sell; Combining Easy Indicators, Charts, and Financial Astrology (now available on Amazon), the Average True Range is a measure of the normal trading range over a specified period. Any deviation outside the average range is considered above the usual volatility, and possible “extended” conditions for the selected time frame.
Both traders and investors utilize the deviation from the ATR as a contrarian strategy, as price often “reverts to the mean,” eventually returning inside the ATR, usually in a short amount of time. Those who utilize Bollinger Bands and/or Keltner Channels find this same price movement to be true during Run Days or Periods.
A Run Day is defined as a trading day where a security/index will experience a well above average move in price. There is no specific percentage attributed to the move, but it will be very obvious when it happens. A small move outside the ATR is not considered a Run Day, although it may be an indicator for certain types of traders. Although it is not necessary to be identified as a Run Day, the large advance or decline in price generally starts right from the open, and continues throughout the session. Intraday traders may identify Run Periods, but those are better left to the experienced day trader.
One of the most important factors regarding a Run Day, is the fact that they usually run out of steam, and reverse course, at some point during the next day (trading session). They may continue the large move at the open on the next session, but often “revert” before the close. Historically, the reversion occurs about 75% of the time, although there is no guarantee regarding the size of the retracement. There are also times where there are 2-3 sessions of large directional moves, however that is less common these days, due to “profit-taking” and machine trading. Also, the more “extended” an equity becomes, the faster it is likely to “revert.” Combining this move with already “extended” conditions further increases the probability of at least a short-term pullback/retracement in price. Look for at least a 60% reversal from the “run” session before considering a trend continuation.
Repeated patterns are very powerful in technical and chart analysis, and the Run Day is rather easy to identify, and act on. During a clear trend, a pattern resembling a stairwell (up or down) often develops. Trend, consolidation, resumption of trend, another consolidation… is very common, as is Uptrend, bull flag, resumption of uptrend, bull flag, etc., or Downtrend, bear flag, resumption of downtrend, bear flag, etc. The “bull” or “bear” flag is an example of what occurs on/after Run Days or extensions, as a temporary pullback is very likely.
Many traders also utilize Fibonacci retracement levels (also discussed in our publication), which can be found on almost all platforms as a chart overlay. They levels often assist in popular pullback support levels after a Run Day.
The contrarian strategy during these Run Days is often an excellent opportunity for a successful swing trade, in the opposite direction of the trend, once the reversal is identified. Moving Averages, volume indicators, and certain chart patterns are also useful in identifying these possible reversals, also discussed in our publication.
In future editions of Chart Chat, we will continue to provide various technical pattern education, analysis, and potential price movement set-ups.
For those interested in Astrological analysis, planet positioning and transits, through the zodiac houses and signs, have many similarities to technical analysis. The theme of cycles, repeating patterns, and historical data can be viewed the same way, as the probabilities can be calculated for previous percentages of success. The difference is the use of an Ephemeris, a basic calendar of future planetary transits and aspects (see Chapter 4 of our publication for details), which allows for future positions to be known, unlike the next line, bar, or candle on a technical chart. Although no source will be 100% accurate, this extra layer can be very useful. For those interested, please refer to Trader Transits and U.S. Stock Market blogs, updated regularly on this site.
