I’m always on the lookout for the best day trading indicators and short-term price patterns…
One of the easiest to learn — and one of the first ones I teach new traders — is the U-turn trading pattern.
I call this strategy a “U-turn” because it’s a fast reversal pattern that works wonders with volatile stocks, futures, currencies and commodities.
The Best Day Trading Indicators: What Is the U-Turn Pattern?
The U-turn trading pattern is a short, one-day reversal away from the main trend. When the pattern sets up, it looks like the market is suddenly breaking out in the opposite direction from the trend.
However, as the trading day continues, the market (and this indicator) quickly changes direction and closes back in line with the main trend.
You can see in the example how the stock gaps down against the trend and appears to be falling.
As the day continues, buyers come into the market and notice that the stock is substantially lower than its fair value, and momentum going in the direction of the trend soon follows.
This is a short-term trade that’s designed to take advantage of stocks and other markets temporarily out of balance.
You need to move quickly when you see this type of day trading indicator because they don’t last long.
Make sure the breakaway gap closes near the upper 20% of the trading day.
You also want to make sure momentum is coming into the market the day before your entry.
The next trading session is entry day, which is the most important time because this strategy moves fast. So you want to make sure you don’t miss the momentum coming into the market when using the U-turn pattern for a trade setup.
The entry point is above the high that was made on the signal bar, which is the gap down bar.
The best trades get filled at or near the opening bell, so you want to place a buy stop order a few ticks above the gap day high price. This way your trade will be filled automatically when the market moves above the gap high day.
But one important word of caution… Do not take signals that occur after the first two hours of the trading day.
This is a day trade, so you want to make sure you have plenty of time for the trade to develop and achieve some degree of profit.
When it comes to using the best day trading indicators, don’t limit yourself and your opportunities by trading too late in the session, when there is less profit potential and less time for trades to develop.
You can see the entire sequence from beginning to end in the example below. Don’t forget to cancel your entry stop order if you are not filled during the first two hours of the trading session when using the U-turn trading pattern.
Oftentimes, traders forget to cancel their open orders and get filled accidentally. So prevent costly mistakes by keeping track of all your open orders.
Moreover, don’t forget to place your stop-loss order immediately after your fill is confirmed.
The stop-loss level is placed a few ticks below the signal day low, and the profit target is market on close, or MOC. This way you get the most opportunity to profit from this position without having to hold it overnight.
Second Example of U-Turn Strategy
Keep in mind that you need a strong trending market for the U-turn trading pattern to work. I always look for trend lines that slope above 20%, either up or down.
There are several best long-term and day trading indicators you can learn about on WealthPress.com that discuss how to find a strong trending market, so I won’t go into this topic in this tutorial.
Always remember to trade with the trend, especially when using setups like this that require momentum in the direction of the trend.
The stock pulls away from the trend and appears like it’s breaking down for a short period of time. The stock then quickly reverses as buying comes in, and it closes near the upper range of the trading day.
This is the type of setup you should look for on your daily charts after the close of each session, making it one of the best day trading indicators.
Setups like the one below are ways you can take advantage of temporary inefficiencies in the market.
Some traders watch the market and input orders manually when their entry conditions are met, while others enter stop orders and get filled automatically.
For beginners, I recommend entering stop orders. And for experienced traders, I recommend watching the market and doing it manually.
If you input entry stop orders, make sure you cancel them if they’re not filled during the first two hours of the trading day.
Here’s the final view of the same chart we just saw, but using daily charts instead of intraday charts. I always use daily charts first. And then once I isolate the pattern, I move to intraday charts.
For stocks I prefer to use 15-minute bar charts. For E-mini futures and forex, I use five-minute charts.
Things to Keep in Mind
The U-turn trading pattern is a short-term deviation from the main trend. The setup occurs quickly and disappears just as quick, so you have to find them and take advantage of them as soon as they appear.
Use either stop orders or market orders to enter the trade, and never ever enter this type of trade if the entry has not been triggered during the first two hours of the session.
Hold the position till the end of the trading day and monitor it using 15-minute charts if you’re trading stocks.
If you are trading futures or foreign currency, you can use 5-minute charts instead.
The U-turn trading pattern is one of the best day trading indicators and strategies for quick profits and easy management. I hope that helps!
All the best,
Senior Strategist, WealthPress