Trading into all-time highs generally gets mixed feelings, from what I’ve seen through traders I know, it’s not their favorite market condition.
Why is that? Isn’t trading into all-time highs on the index not a good thing? Well on the intraday it might be a difficult market to trade, many traders get the urge to fade, by selling the market ripping into ATH (all-time highs) because they’re not on the originating move that leads to the highs and think it’s too late to get on the wave.
This isn’t the best of thinking and can get you into trouble, so I’ll explain what all-time trading is and how to stay on-side and even if it seems you’re late on the trend. Spoiler, it’s better to be late than constantly trying to find where the reversal lies.
When day trading futures, this is one of the most hated conditions in the futures trading community. If you’re not on the move, it’s hard to convince yourself to just outright buy as it’s breaking higher. Risk is higher, leverage is higher and you don’t really have that wide of a stop loss.
What makes it so hated as well is that when the trend starts, it’s hard to get on, there aren’t any larger pullbacks and it seems like prices just stall after a run up, then run again, and stall and continue like that.
The stall makes it seem that it’s actually going to turn, then retail piles in short, only to rotate higher.
This article will break down the psychology of trading into all-time highs and how we as day traders can effectively trade them in the futures market.
What are all-time highs and what do they mean?
When a stock or an index trades at new highs, never seen before, this generally spurs a swing of new buying, it’s rare to see an equity or asset peak at an all-time high and then turn around just to sell off and enter correction.
There are different situations where ATH can be created which means different things and types of market participants are coming through.
- ATH breaks after a long period of not seeing ATH or a long period of ranging.
- The continuous ATH each day or nearly each day.
The first, in a situation where a market trades into a new ATH for the first time in months, or even longer where price may have been rotating in wide swings. This means that when we do crack the highs, there is a lot of buying and large positions see this as an opportunity to start a larger expansion so the buying doesn’t stop, it’s euphoric, all the range sellers are getting stopped as well. There is an eventual pull back but for the most part the strength is heavy on the buy side.
Just look at GOOGL as we finally broke ATH, this was back in Mar. ‘24 and we broke $152, went up to $193 before seeing any kind of larger pullback.
In the other case, we can make a really extended move to the ATH break, which can be based on anything, but even then, off the start of the move, you’re going to see continued buying and euphoria as prices continue to expand higher and higher.
But if we keep making ATH after ATH multiple times a week, even a month, you’re going to get a rude awakening and the first sign of major weakness most likely turns into an area where traders can get more acquainted with the sell, but at that point they would’ve tried to sell it so much and lost so much money… That’s why I think if you’re breaking ATH, and you notice it, ride the wave.
Look at SMCI, Jan ‘24 we moved into ATH and news struck, this stock was flying high and the first large sell off was at 108, so watching around there, further weakness most likely ruins this momentum.
We can take these principles, and apply them to our favorite stocks, but also in the futures trading world.
All-time highs in Futures Indexes.
When the S&P500 Futures or Nasdaq Futures trade ATH, many intraday traders aren’t on side and they get eaten to the upside swing, which enforces the continuation of that all-time high.
It starts with larger short positions getting swept from prior sells, the initiation of the stop flush or at least short covering (which turns into buying) then the larger players repositioning to get long on the break adding to the turmoil, then you have retail not long, and for some reason thinking that the move is overdone into highs, constantly trying to find the turning point and shorting highs as we burst higher.
This is one of the worst things that we can do as retail traders, see the market moving into all-time highs and continuously sell it. Those are stops getting swept.
My philosophy is that it’s better to be late on the move and look for the longs than constantly try to fade and short a move into ATH.
Instead if you’re wrong and you’re the last long to get onboard, you get stopped only once. Rather than getting stopped 2, 3, 4 maybe even 10 times trying to go short.
One of the worst things that
There are two questions that may arise here.
- How do you know when the trending move happens, is there a way to know the ATH move expands?
- How to get into a move into all-time highs.
All-time high identification and potential for trend continuation.
In futures trading, the key to understanding if a break higher has potential to continue is if it’s the first break in a while, or an early continuation.
If you’ve made new ATH, barely for a full week, odds are you’re not going to see that trend expansion, however, if you haven’t seen ATH in a few weeks or a longer period of time and we’ve seen a pullback, while prices are most recently creeping into the ATH, this is the situation you should expect in terms of an all-time high expansion break.
Take a look at the SP500 (ES) Futures below. The first move into a new all-time high brought expansion, but as we continued after to show barely any breaks above the ATH with some failures tells us that it’s a move that’s most likely over.
We most recently had a pullback, now prices are moving back towards the ATH area, meaning after this kind of repositioning we should get a larger expansion the next time we move above the prior ATH around 6,112. Which many will short, but not us!
If you take a look at Nasdaq (NQ) Futures most recently, we got a huge move off that pullback and we moved through the prior ATH, it was all buy from there while traders were getting stopped out left right and center trying to go against this move.
You can see that NQ stalls out and rotates to make its own balance into the new ATH it’s made, then the expansion starts.
How can we enter into ATH trades?
Is it as easy as just buying at the market and just holding onto it, no stop and pray that we continue.
Not exactly, the psychology of ATH movement is that there is continued buying and that the sellers get trapped. This means that there aren’t really any clear pullbacks; they are just rotations or small pullbacks.
When that occurs, the sell side that tries to come in gets trapped at minor swing lows on the rotations. That’s where we want to locate the entry to continue the momentum move higher.
We can identify this using Order Flow.
Let’s use the Nasdaq futures as an example. Above we have the image of the Nasdaq starting to move towards the ATH and break it.
The Regular Trading Hours ATH was 21,670, while the overnight was about 21,705.
Use both of these to guide, there were no signs of stalling out, only of heavy market participants getting imbalanced, which is really visible from the footprint.
On Nasdaq, I watch to see the delta imbalance on the footprint to be greater than 70, as prices continue higher, and leave behind heavier negative delta those are areas where traders would entertain getting long.
Delta accumulation and imbalance happens right at the prior NY session high from the 21,670 on Nasdaq, when we pop, the expected move is to hold it as support structure which allows the buy side to flourish and continue its all-time high buying.
This was 21,670, we move up 130 points from here, or $2,600 a contract.
Notice where the markets rotate and pullback, you can use the auctions and volume profiles, and watch to find where the sell side gets trapped and rebid, that’s your in on a long market making a break for ATH.
Conclusion:
It’s very common to see traders hate the expansion of assets into all-time highs, mainly because they’re not on the long going into these expansions. It’s an emotional response and they’re now getting FOMO wanting to get in, hence looking for a pullback in this move.
The best thing to do is try to jump on the trend, the worst thing that can happen is you get stopped once and stop rather than stopped 10 times trying to sell that ATH.
