| Updated: September 12, 2025Further discussion of trends from the start
This lesson will cover the following
- Economic reports may also lead to trends from the start
- Even the best patterns can fail to meet traders’ expectations
- Spikes as signs of trends from the start
Economic reports may also lead to trends from the start
Sometimes macroeconomic reports released early in the morning can lead to a reversal bar, a breakout bar or a large outside bar, each of which has the potential to mark the start of a strong trend lasting for the entire trading day. In such cases, computerised trading programmes have a considerable advantage over individual traders. Computers receive fundamental data instantaneously, process it, and then decide how to enter (in which direction and with which order). As this usually occurs within a second, it gives trading programmes a considerable edge over individual traders. Because the latter are at a disadvantage, they should only enter trades immediately after a report is released on very rare occasions. Computer programmes will eventually reveal what the always-in trade is (this usually happens within 2-3 bars). The other possibility is that computerised trading may set up a trend reversal. Either way, individual traders will have the opportunity to make entries in the appropriate direction if they do not rush in at the moment of data release.
We should also note that the strong bar that could signal the start of a trend may not appear at the moment of data release, but several bars before or after it. However, the strong trend bar occurs often enough for traders to anticipate it and make their entries as soon as the always-in trade becomes clear.
Even the best patterns can fail to meet traders’ expectations
Experts estimate that in about 40% of cases, patterns do not develop in line with most traders’ expectations. If prices have not paused by the third or fourth bar, this implies that the market has moved quite far and quite rapidly. Consequently, such a situation increases the probability of a trend reversal rather than trend continuation.
Spikes as signs of trends from the start
If prices trend for four or five bars or more without a pullback (sometimes just one or two large trend bars), this constitutes a strong move, known as a spike. As mentioned earlier, a spike represents a zone where buyers and sellers tacitly agree that little trading should occur while the price moves rapidly to another level. If the spike appears within the first few bars, the trading day usually becomes a trend from the start day. The trend may continue throughout the day, but in some cases the price can reverse and even break out in the opposite direction. If this occurs, it can trigger a trend in the opposite direction, resulting, for example, in spike plus channel trends. Other possibilities include the day evolving into a trending trading-range day or simply a trading-range day.
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As previously discussed, bulls who entered long early in the spike will probably take profits at some point, creating a short pullback. Another group of bulls who missed the earlier opportunity will probably establish sizeable long positions during the pullback. Others may prefer to increase their position size during the pullback as well. Most of these bulls will likely place limit orders at or below the low of the previous bar, anticipating that the current bar may dip below the preceding one, allowing them to buy at even lower levels. Some traders may also prefer to enter long using stop orders placed above the high of the pullback bar.
Three possibilities following the spike
Every spike is followed by one of three possible scenarios. First, prices may have moved quite far and quite rapidly, and the market may therefore be showing signs of exhaustion. If a pause or pullback (in the form of a small inside bar, for instance) is observed after this strong move, a small breakout and even a reversal are possible. Such a reversal can sometimes last for several hours.
Second, the market may trade sideways for a few hours (entering a tight trading range), after which the original trend may continue into the close (creating a trend-resumption day). This sideways movement is common, especially after a sharp spike, and can last for up to ten bars.
Third, the most common scenario involves a more moderate-sized spike followed by a trend channel. The trading day thus becomes a spike plus channel trend day.