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How To Tell If A Market Is Weak Or Strong

You can get a good feel by how strong or weak a market is when you tradeoff the 5-minute charts or a similar timeframe. The first thing you want to recognize over a couple days is whether the buy signals or sell signals are working. Bull markets produce a lot of false sell signals and bear markets produce a lot of false buy signals.

 
I also look for a change in patterns that once worked in a strong market, but they are no longer working. Looking at the above chart, you can see how the Nasdaq Emini market gapped higher at the open and dropped to the 20-period EMA around 10:00 to 10:30. This was a strong buy setup when the bull market was in full force, but it got crushed today. 
 
Around 1:00, the market tested a double bottom. It broke support and reversed. This was also a very strong buy signal during the strong bull market. The market typically would have rallied sharply into the close just a month ago. However, it failed and led to lower prices. 
 
This is why it pays to follow the trend. The probabilities are on your side if you take trade setups with the trend. You should be able to get a good feel for overall market strength or weakness when you are daytrading. It does come with experience, but if you feel you are beating your head against a wall for a couple days – you are likely fighting market strength or weakness.


Disclosure: no overnight positions