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Trend, range and reversal days

Lesson 16 · about 9 min

Module 4 ended with a rule: the day type decides which setups are live. This module is about reading it early enough to matter. Three day types cover most sessions, and each one has tells that appear in the first hour, before the day is obvious to everyone.

The three types

Trend day. The market opens near one extreme of the day's range and closes near the other. Pullbacks are shallow, VWAP is not revisited after the first hour, and every breakout in the trend direction is followed. Roughly 20% to 25% of sessions.

Range day. The first hour sets a high and a low, and the rest of the day rotates between them. Breakouts fail, VWAP is crossed many times, and the close is near the middle. Roughly 50% to 55% of sessions.

Reversal day. The open trends one way, usually for the first 30 to 90 minutes, then a level (often the overnight extreme or a daily level) stops it, and the afternoon trends the other way. The close is often beyond the opening price on the opposite side. Roughly 20% to 25% of sessions.

  Trend day               Range day               Reversal day

         ___/                                          /\
      __/                ___/\    /\    /\__          /  \
   __/                  /    \__/  \__/     \        /    \___
  /                    /                     \      /         \
                                                   /           \__
  open low,           open mid,               open, trend up,
  close high          close mid               reverse, close low

Early tells: the first 30 minutes

You will not know the day type at 9:45. You can know which way the evidence leans, and that leaning is enough to choose the first trade.

Tell (by 10:00) Leans trend Leans range Leans reversal
Gap Gap of 0.5%+ that holds Gap filled in first 15 min Gap that extends then stalls at a daily level
First 5-min bar Large, closes near its extreme Small or closes mid-bar Large, then next bars fail to extend
Opening range Breaks once and extends Breaks both ways, both fail Breaks, extends, stalls at overnight high/low
VWAP Price stays on one side Crossed twice or more One side, then a decisive cross around 10:00 to 11:00
Pullback depth Under a third of the last leg Full retracements First pullback goes deeper than every prior one
Overnight range Open outside it, never re-enters Open inside it, stays inside Open outside, re-enters after the first hour

Two or more tells in a column is a lean. If the columns are mixed, there is no lean, and the default is to assume range because it is the most common.

The 10:30 read

At 10:30 the initial balance is complete and the picture sharpens. The next lesson covers the initial balance and the equity-specific breadth tools; here is the decision framework.

Trend day confirmed if: the initial balance is narrow relative to the average (under about 70% of the 10-day average first-hour range) and price has already extended beyond it on one side by 10:30, with VWAP sloping the same way and no cross since 9:45. A narrow initial balance that breaks is the classic trend-day signature: the market found no agreement in the first hour and left.

Range day confirmed if: the initial balance is wide (over about 120% of average), both extremes have been tested and held, and price is near VWAP at 10:30. A wide first hour means the market already explored; the rest of the day rotates inside what it found.

Reversal day suspected if: the first hour extended strongly in one direction to a daily level, and the 10:00 to 10:30 window has produced the deepest pullback of the day with a VWAP cross. Reversal days are not confirmed at 10:30; they are suspected, and the confirmation is a close through the opening price with a trending VWAP the other way, usually by 11:30.

What each type means for the playbook

Day type Live setups Dead setups Sizing
Trend ORB (early), VWAP pullback, pullback continuation Range fades, failed breakout reversal against trend Full size, wider targets, trail
Range Failed breakout reversal, range fades, VWAP reclaim/rejection with VWAP target ORB after the first attempt, pullback continuation Full size, small targets, strict consecutive-loss stop
Reversal Failed breakout at the daily level, VWAP loss/reclaim in the new direction, afternoon pullback continuation Anything in the morning's direction after 11:00 Half size until confirmed, full size after

The most expensive mistake in a day trader's log is not a bad setup. It is a right setup on the wrong day: fading a trend day's extremes, or buying pullbacks on a range day. Both feel like the playbook is being followed. Both lose.

Key idea: Day type is the master switch. Trend days reward continuation and punish fades; range days reward fades and punish continuation; reversal days punish anyone who is still trading the morning's direction after lunch.

A note on frequency

The percentages above are rough and vary by product and regime. Index futures in a low-volatility regime trend on fewer days than 20%; a single stock on an earnings day is almost always a trend or reversal day. Your replay log is the only source of the number for your product. After 40 classified sessions you will have a usable base rate, and that base rate is your prior at 9:30 every day.

Try it: Print the tells table. For the next ten sessions, fill it in at 10:00 and again at 10:30, in pen, before looking at anything else. Then at 16:00 write what the day actually was. Ten sessions gives you a first estimate of your own accuracy at 10:30, which is the number every decision in this course depends on.

Recap

  • Three day types: trend (about a quarter), range (about half), reversal (about a quarter).
  • First-30-minute tells: gap behaviour, first-bar size, opening range breaks, VWAP crosses, pullback depth, relation to the overnight range.
  • 10:30 confirmation: narrow initial balance that breaks means trend; wide initial balance that holds means range; a strong extension that stalls at a level and crosses VWAP suggests reversal.
  • Each type switches specific setups on and off; the wrong setup on the right day is the most common loss.
  • Build your own base rate from 40 classified sessions in replay.

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Intraday price swinging around VWAPA price line for one trading day weaving above and below a smoother VWAP line, with a band drawn one standard deviation either side of it.INTRADAY PRICE AND VWAPprice9:3012:4516:00+1 SD bandVWAP−1 SD bandIllustrative session. VWAP starts fresh at the open and firms up as the day fills in.
VWAP and its standard-deviation bands. VWAP is the day's average price weighted by how much volume traded at each price, so it shows where the bulk of the day's business was done. The bands sit one standard deviation either side, and price here swings between them all session.
A range beside a trendOne chart swinging between a flat floor and ceiling, another stepping upwards inside a pair of sloping lines.Range-boundresistancesupportprice bounces between two levelsTrendingthe trend channelhigher highs and higher lowsA range has two flat edges; a trend has two sloping ones.
Range versus trend. On the left price keeps bouncing between the same floor and ceiling, which is a range. On the right each high and each low is higher than the last, inside a pair of sloping lines called a channel.
Breakout and retestPrice stalls under one level, pushes above it, comes back to touch it from above, then continues higher.pricetimeold resistancenow support1price keeps stalling2breaks above3pulls back and retests it4and carries on
Breakout and retest. Price stalls under the same level several times, pushes above it, then drops back to touch it from above before carrying on. That touch is the retest, where the old ceiling is tried as a floor. A break that falls straight back under it is a false breakout.