What is the smash day pattern

The Smash Day Pattern is a trading pattern developed by Larry Williams, consisting of a day of increased volatility that closes significantly beyond the previous day's high or low, reversing the prevailing trend. This pattern is named "Smash" because it often precedes a significant change in direction, "smashing" the traders' expectations and leading to strong price movements. 1. **Definition**: A Smash Day occurs when a security's price moves dramatically, closing either above the highest point or below the lowest point of the previous day's range. This can involve a breakout above a previous high or a drop below a previous low, depending on the direction of the movement. 2. **Types of Smash Days**: - **Smash Day Buy**: Forms when the price closes below the low of the previous day, often breaking the lowest low of the past 3 to 8 days. This triggers a buy signal if the next day the price moves above the Smash Day high. - **Smash Day Sell**: Opposite to the buy pattern, this forms when the price closes above the high of the previous day, potentially breaking the highest high of the last 3 to 8 days. It triggers a sell signal if the next day the price moves below the Smash Day low. 3. **Trading Strategy**: - **Filter and Exit Strategies**: Patterns are filtered using trend indices and time indices to ensure they occur within a specific trend context. Exit strategies involve placing buy or sell stops one tick above or below the relevant highs or lows. - **Targeted Exits**: For type A patterns, exits are based on target prices set as a multiple of the initial risk per trade. This approach aims to lock in profits or minimize losses when the reversal occurs. 4. **Effectiveness**: Smash Days are considered powerful reversal patterns by Williams, who believes that when "what should happen in the market doesn't happen," it provides strong evidence for a trade. Backtesting has shown these patterns to be profitable, though they require careful timing and market analysis. In summary, the Smash Day Pattern is a volatile day trading pattern that can signal strong reversals. Traders look for days that close dramatically beyond the previous day's range, which can prompt trades aligned with the new trend direction.