A key element of trading is in determining which side of the trend the stock is on: bullish or bearish. This sounds very simple but it is in fact a crucial challenge to overcome on a trader’s path to consistent success.
Disregarding or fighting the trend when day trading can lead to big losses that could eventually cause the demise of the day trader. In the trading space, the term ‘frontside’ refers to the uptrend of a stock in a bullish formation, and after an uptrend comes the downtrend which is referred to as the ‘backside’ or bearish trend of the stock.
When day trading the best long opportunities are generally to be found on the frontside of the move, whereas the best short selling opportunities are to be found on the backside of the move. This does not mean that there are no long opportunities on the backside and no short opportunities on the frontside of the trend, trading is not always so simple and straight forward.
A day trader can execute trades on the frontside and backside of the trend using trading software by TradeZero.
Day traders looking to take a long position generally want to be executing their position on the frontside of the trend since the risk-to-reward ratio and the win rate is usually better compared to longing the backside of the trend. When day trading on the frontside there are some important criteria a trader should pay attention to before deciding to execute the trade or not, it also helps to gauge whether the stock is really on the frontside or still on the backside of the trend.
Criteria for confirming Frontside
For a frontside trend to continue higher there usually needs to be relatively high volume (demand) for the stock to continue going higher. Take a look at the chart below for example, throughout the day this stock kept on maintaining buying volume helping it to continue moving higher in price throughout the day.
(TradeZero: August 8, 2022)
Higher Lows & Higher Highs:
Higher lows and higher highs are a strong signal that a day trader wants to see to confirm the stock is still on the front side of its trend, also illustrated on the chart above.
A very simple feature to spot when day trading is to see whether the stock is currently in an uptrend or a downtrend, drawing an ascending trendline could help a day trader spot the trend. In the above chart the stock had been in an uptrend the entire day and the trend never broke.
Break above VWAP:
When a stock breaks above VWAP and continues to hold it, that can indicate the start of a strong frontside move. In the above chart the stock broke VWAP in the early morning and the price then found support on VWAP, consolidated for a short period, and then the stock took off higher. Around noon the stock slowly moved back down to VWAP and again found support on it only to continue higher.
For a stock to go higher it has to find and hold on to support, in the chart above, $0.90 cents and $1.20 both acted as a strong support level. The $1.20 ish support zone first acted as resistance but later when the price came back to this level it acted as an excellent level of support for the stock to continue higher from.
All of these combined factors help the day trader to develop a clearer picture of where they are on the front side of the trend. From my experience keeping things simple tends to work best when day trading, however, it is different for every trader.
Executing day trades on the backside of the trend generally works best for short selling day traders. Typically, the benefit of day trading on the backside of the trend is that a trader already has a lot of information about the ticker by first watching the frontside of the move.
Since all stocks eventually will go from frontside to backside, the so-called ‘left side’ of the chart has already formed. The only thing a day trader now has to do is wait for the right criteria to show up to confirm the backside of the move before executing a short sell day trade.
Criteria for confirming Backside
For a stock to go lower there has to be an increase in selling volume compared to buying volume, the supply needs to outweigh the demand of a stock. In the chart below it can be seen that after 9:35 the volume has dried up, creating more supply than demand. Typically when there is more supply than demand of an asset it depreciates in value.
(TradeZero: August 8, 2022)
Lower Highs & Lower Lows:
When a trader is short selling a stock they’ll often look for lower highs and lower lows to confirm weakness. Throughout the day the stock above continued to set lower lows and lower highs, never breaking over any high to potentially cause a shift in price action, indicating more supply than demand.
‘The trend is your friend’ is a commonly known phrase and when short selling the direction that a trader wants to see is downward. In the chart above it can be seen that the trend shifted pretty early on from frontside to backside and the trend stayed downward throughout the majority of the day.
Intraday & Daily Resistance levels:
When short selling intraday resistance levels can act as good spots to enter a trade. In the chart above, support levels became resistance levels creating potential short sell entry points (indicated by the white lines).
It does not matter whether day traders are day trading on the frontside or the backside of the trade, what matters is that they are practicing a repeatable process using some or all of the above criteria to base their trading decisions on. In the end, a day trader can choose to only trade the frontside, only the backside, or even both, it all depends on what they are most comfortable with.
TradeZero. (2022, August 8). TradeZero US. Retrieved from TradeZero: https://tradezero.ca
TradeZero. (2022, August 9). ZeroPro. Retrieved from TradeZero: https://tradezero.ca/zeropro
TradeZero. (2022, August 9). ZeroPro. Retrieved from TradeZero: 2022
TradingSim. (2022, August 9). THE BACKSIDE OF A TRADE: WHEN TO GO SHORT. Retrieved from TradingSim: https://www.tradingsim.com/day-trading/backside-shorting-stocks#What_is_NOT_the_Backside
This content (“Content”) is produced by Bram Pierik. The Content represents only the views and opinions of Mr. Pierik. Mr. Pierik’s trading experiences and accomplishments are unique, and your trading results may vary substantially. TradeZero does not endorse the Content and makes no representations or warranties with respect to the accuracy of the Content or information available through any linked third party sites. The Content has been made available for informational and educational purposes only and should not be considered trading or investment advice or a recommendation as to any security. Trading securities can involve high risk and potential loss of funds. Mr. Pierik is compensated by TradeZero for producing the Content and may also receive compensation for customers he introduces to TradeZero.
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