Spring and Upthrust Trading Strategy
In this article, I am going to discuss one volume trading strategy that is spring and upthrust trading strategy. Please read our previous article Finding Entry Opportunity using Volume Spread Analysis for better understanding of this article. As part of this article, I am going to discuss the following pointers in detail.
1.What is spring
2.Logic behind spring
3.Some element for determining spring
Spring and trend
Spring and volume
Spring and follow-through
5.When should avoid trading spring
6.My trading setup using spring
Spring (opposite upthrust(UT))
- Price dips below support and rallies to close on or near its high and back above support, so there should be a clear minor or major support zone
- Failure to follow-through after breaking below support or recent swing low
- All bullish pin bar is not spring but all spring is a bullish pin bar
A spring is an example of a “bear trap”. WHY? Because price drop below support appears to signal resumption of the downtrend. But In reality, the drop marks the end of the downtrend, thus “trapping” the late sellers, or bears.
The strength of the sellers can be judged by the depth of the price drive to new lows below the support and the relative level of volume on that penetration.
A spring involves the penetration of a well-defined support level on low or moderate volume .think if a stock going to break the support, it must break with high volume .the spring action shows that the stock trying to break down and failed. It is an important sign of strength
Spring and Trend
During an uptrend
- They will work best in trending conditions. During an uptrend when bullish signal appears, we go long.
- A retracement to a prior resistance now- support area is a typically excellent trade
- Fibonacci retracement level also worked well
During a downtrend
During a downtrend when spring signal appears then we need a retest of that spring before we can go long.
- Be sure that prior trends are over
- Background:The background is extremely important. You should see strength in the background with stopping volume or a selling climax or end of falling market
- Then appearing spring and Spring is Tested
Spring and Volume
Low volume spring
Volume should be lower than the original anchor(where support first occurred ) candle at support, when price retrace first time to support the candle should have low volume than the anchor candle
The shallow price penetration and low volume indicate sellers are exhausted. springs should be bought immediately.
High volume spring
High volume indicates demand coming in, as we trade with the trend , springs should be bought immediately.
If we want to trade for trend reversal. High volume indicates presence of sellers more likely to test immediately or after some rally.
In order to justify buying on the test of the spring, two criteria must be met.
- First of all, the volume on the test must be lower than on the spring itself. If it is not, nothing is proven and no buying should be done.
- Secondly, the price should hold at a higher level on the test than on the spring, It is especially positive if the price supports at or above the support level on the test.
If these two criteria are met, the stock can be bought on the test of the spring. Immediately after the test, the stock should begin a rally.
Spring and Follow-through
WHAT PRICE ACTION SHOULD HAPPEN AFTER SPRING
If a spring fails to rally away from the SUPPORT and price hangs near the Spring low, then Something is likely wrong
WHEN SHOULD AVOID TRADING SPRING
Context or background move
In a Downtrend where supply is dominated. the swing down to Spring has supply(price decreasing and volume increasing) compare to demand swing, the odds of success are low
Momentum should be loss when approaching support and the spring indicate strength this is good context. If momentum increases when approaching support and the next is a spring ,the context is not showing strength and the spring should be see in suspect
Last demand swing
Shortening of thrust. Thrust Refers to the distance between the current swing high to a previous swing high (in an uptrend) or swings low (in a downtrend). Increased thrust is a sign of potential trend strength. Shortening of Thrust is a sign of potential trend weakness.
If last swing high is characterized by diminishing demand(price increasing and volume decreasing ) odds for success are lower
My SPRING SETUP(opposite for upthrust)
Trend continuous setup
- WELL DEIFINED SUPPORT
- Last swing low or resistance turned into support
- Fibonacci retracement level (50-61.8%)
- 5 minutes
- Both stock and index
Context or background
- Market in a defined uptrend
- Cleared support level
- Low volume when approaching support level
Set up condition
- Price retrace towards support on low volume
- Spring at confluence of support plus vwap (strong signal) or spring at support
- Buy above the spring
- Or Test of spring
- Below the spring
- Next resistance
- Or any bearish reversal price action
Here, in this article, I try to explain Spring and upthrust Trading Strategy. I hope you enjoy this article. Please join my Telegram Channel to learn more and clear your doubts. https://t.me/tradingwithsmartmoney. Any doubt or question please ask happy to help you.