In Mind Over Markets (1st ed., 1990), James F. Dalton, Eric T. Jones, and Robert B. Dalton describe six types of market days that recur across all financial markets—though no two days are ever exactly alike:
"The labels we will give these patterns are not as important as understanding how the day evolves in relation to the initial balance and the confidence with which the other time-frame has entered the market.
Think of the initial balance as a base for the day's trading. The purpose of a base is to provide support for something, as the base of a lamp keeps the lamp from tipping over. The narrower the base, the easier it is to knock the lamp over.
The same principle holds true for futures trading in the day time-frame. If the initial balance is narrow, the odds are greater that the base will be upset and range extension will occur. Days that establish a wider base provide more support and the initial balance is more likely to maintain the extremes for the day."
Summarizing all six market day types.
Initial Balance
The Initial Balance is traditionally defined as the price range established during the first hour of trading. It is extremely important to exchange floor professionals, who use the Initial Balance high and low as key reference points to facilitate transactions between buyers and sellers.
1. Trend Day
The Trend Day is the most aggressive market day type. On a bullish Trend Day, the open typically marks the session low and the close the session high, with minor variation. On a bearish Trend Day, the open usually marks the session high and the close the session low.
Trend Days exhibit the widest price ranges, making it costly to trade against the move or to recognize the pattern too late. They occur only a few times each month, but capturing them can be highly profitable. Trend Days are often preceded by quiet, narrow-range sessions (e.g., Toby Crabel’s NR4, NR7, or Inside Day patterns). Although rare, a Trend Day can occasionally be followed by another.
Trend Days are driven by initiative buying or selling, as participants show strong conviction in moving price into a new area of value. As price moves farther from value (about 70% of the prior day’s range), participation and volume increase, reinforcing sustained directional movement.
2. Double-Distribution Trend Day
The Double-Distribution Trend Day also trends, but with less confidence and conviction than a classic Trend Day. It begins quietly, with indecision and a narrow initial balance during the first one to two hours. A narrow initial balance is prone to breakout, allowing price to auction beyond the range toward new value.
Once the breakout occurs, the market trends and builds a second distribution of trading activity, testing whether new value is accepted. By the close, volume is concentrated at both the early and late ranges, forming the characteristic double distribution.
The initial balance is crucial for this structure. A narrow initial balance increases the likelihood of breakout, while a wider initial balance makes such a move less probable.
3. Typical Day
The Typical Day begins with a wide initial balance, usually created by a sharp rally or sell-off at the open. This early move pushes price far enough from value to attract responsive participants, who drive it back in the opposite direction and establish the session’s extremes. The market then trades quietly within these boundaries for the rest of the day.
The opening surge is often triggered by economic news released early in the session. Because the initial balance is wide, it generally serves as a firm base that is unlikely to be broken.
4. Expanded Typical Day
The Expanded Typical Day resembles the Typical Day in beginning with early directional conviction, but the opening move is weaker. As a result, the initial balance is wider than that of a Double-Distribution Trend Day yet narrower than that of a Typical Day, leaving it vulnerable to violation later in the session.
Eventually, one of the extremes is broken, usually through initiative buying or selling, and price extends in the direction of the breakout. Because the base is neither wide nor narrow, both sides of the initial balance are susceptible to failure, and either—or both—may be tested during the day. Once an extreme gives way, price expands to establish a new area of value, with continued directional movement often carrying through to the close.
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The last two day types appear similar but have key differences. While both involve limited directional movement, the distinction lies in the level of participation from buyers and sellers.
5. Trading Range Day
A Trading Range Day occurs when buyers and sellers actively auction price back and forth within the session’s range, typically defined by the initial balance. The initial balance is roughly as wide as that of a Typical Day, but rather than trading quietly within the extremes, participants continually push price between the high and low.
Responsive sellers enter shorts near the top of the range, driving price back toward the lows, while responsive buyers enter longs near the bottom, pushing price toward the highs. This back-and-forth activity continues throughout the day, providing clear opportunities for timing entries and facilitating trade.
6. Sideways Day
A Sideways Day occurs when price remains stagnant, as both buyers and sellers refrain from significant activity. This typically happens ahead of major economic releases, news events, or trading holidays.
There is no trade facilitation and no directional conviction. The session is a non-trend day with a very compressed range, often forming an inside day, and the risk-reward ratio for day traders is low. The initial balance is narrow, suggesting the potential for a Double-Distribution Trend Day; however, initiative buying or selling never develops, leaving the market quiet for the remainder of the session.
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| Jan Firich (2012). |
The market typically alternates between high- and low-range sessions. When a rally follows the formation of a narrow value area, the next session’s value area often becomes very wide.
A wide value area usually leads to Trading Range or Sideways Day behavior. In such cases, the initial balance is generally larger, as the market establishes the day’s trading extremes, often resulting in a Typical, Trading Range, or Sideways Day.
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