Tag Archives: Bias

Establishing a Bias From the Open (Part 2 of 2)

Establishing a bias intra-session is a simple process of following our 6 principles for future trend direction.

It's a little more difficult at the session open though, when the lack of prior data adds to the uncertainty.

Last week we worked through an example in which we established a bias from the open. Essentially it's a process of "best guess" based upon judgment and experience, as we reconcile the often conflicting information provided by pre-session trend, position of the open with respect to the prior day's close and range (high-low), position of the open with respect to support or resistance, width of the new opening range price bar, the direction of break of the new opening range high or low, and of course the strength or weakness of the opening price bars.

Read that article first if you missed it: http://yourtradingcoach.com/trading-process-and-strategy/establishing-a-bias-from-the-open-part-1-of-2/

Today, let's work through another example, offering a variation on the initial opening conditions and the subsequent attempts to determine bias.

We'll start again by looking at two different views of the market at the time of pit-session open.

The first is the pit-session only higher-timeframe chart, which shows the position of the open with respect to the prior day's close and prior day's range. This is followed by a trading timeframe chart showing the position of the open with respect to the pre-session trend.

establishing a bias at the market open 

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Establishing a Bias From the Open (Part 1 of 2)

My method of establishing a bias, or an expectation for the future trend direction, is done through six basic principles of price movement, as listed in my YTC Price Action Trader ebook series.

This requires prior price action as it's based partly upon analysis of previous bullish and bearish price swings and trends.

So what do we do when the market initially opens and we don't yet have sufficient price swings to determine our bias?

I'll attempt to demonstrate below using the open from a Crude Oil session earlier this week. As you'll see, there are no fixed rules and there is a lot of uncertainty. The charts provide little information. Analysis, as well as confident and decisive action, relies upon judgment and experience. And effective trade management relies upon your ability to drop or change a bias as soon as opposing information comes to light. Often you'll be required to adjust your bias as price behaves somewhat differently to your expectations.

While lacking experience in the early days, by far the better option is to simply avoid this period of time. Delay your first trade until the market has had time to establish sufficient swing highs and lows to confirm a trend and market bias.

But until you have the requisite experience, don't just blindly wait for the trend. Use this time to watch price movement and make your best call on the bias. You'll get it wrong a lot. But each time you do it you're learning and gaining the experience that is necessary for expert judgment.

Here we have the market opening on Monday, July 22nd, 2013.

Price opens the pit session at 108.52. Let's see what we know already. The following two charts show different views of price at the open; the first being the higher timeframe 5-min chart showing the pit session data only, and the second being the trading timeframe 1-min chart which includes the pre-session (overnight) data.

establishing a bias at the market open

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Where is the Bias after a Strong Impulse Move?

Excerpt from email received at YTC:

Lance,

I have attached a couple of 5 min charts for you to take a look at. Both charts show a strong quick move, one is 60 pips, the other 80 pips. (I trade using 60/30 min, 5 min, and 1 min charts… so 5 min is my trading timeframe)

I am often very hesitant to trade after a move like this. Could you share with me your thoughts and the process you would go through in assessing the market after this type of move?

By the way, the second chart does form a complex pullback and then breaks the low by 12 pips or so at the time of this writing.

Lastly, I would like to again thank you for all you do. I’ve been following your web site for about 4 years now, and purchased your YTC Price Action Trader book just after Christmas. I’m well on my way to realizing my dream of trading for a living. I’m not there yet, but on my way!

Thanks again,

CR

fast impulse move 1

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When to Doubt a Pullback

I find the "grey areas" on a chart fascinating; the areas where our bias or premise start to show signs of breaking down and our decisions are clouded by the uncertainty that prevails at the hard right edge of our screen.

This is where real learning happens! Where your knowledge, skills and attitude are pushed just beyond their limits.

downtrend pullback

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Stop and Reverse

I don't often reverse a position when stopped out. Usually the failure of a trade in one direction does NOT automatically mean that the opposite direction offers good opportunity.

Most often when they do occur it's because I'm attempting a counter-trend trade and find myself caught in a trap. The stop and reverse allows me to minimise damage and possibly even profit on return to the with-trend direction.

The opposite though, is rare. Reversing a with-trend trade into a counter-trend trade does not happen very often. And when it does, my expectation is NEVER for a complete trend reversal. Rather I'm looking to profit off a small reversion to the mean. And most often this will be done with a reduced position size.

Here's one example of the rarer counter-trend reversals…

The trend was tentatively changed to downwards at A, with the change confirmed on continuation down to B. B's break of C was weak though, extending only two ticks, so entry on the first pullback to D was avoided in preference for a second chance entry on the failure of bar E. Entry was sought intra-candle on the lower timeframe in expectation of a continuation of the downtrend. Part one would target just inside the prior low at B with part two running to the 86.80 region.

Standard YTC Price Action Trader stuff, but on a lower timeframe.

stop and reverse

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A Bias-Changing Event

We're all familiar with the charts produced by news events that cause a sudden and massive expansion in volatility, as shown below in this example from my blog archives.

(If you’re interested in the blog post associated with this chart, and an examination of the retest of support, you’ll find it in the YTC Newsletter signup bonus ebook, “The LOST Files – 150 Lost YTC Blog Posts”. Search for the following post: “Looking Inside a One Minute Bar”.)

news event changes bias

However the majority of the time a news event results in a much less dramatic outcome.

So when a news event turns out to be a bit of a non-event, should we discard it as being insignificant and simply carry on with our prior directional bias?

Not necessarily!

As seen below on the Euro, news events from last Friday and then again on Monday produced candles which would not be considered significant, when comparing their range (H-L) with prior candle ranges.

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How I Define and Use an S/R Framework when Price is in No Man’s Land

This article is in response to a great question from a YTC reader:

  • How do you conduct analysis for a market that is in "No Man's Land", i.e. in an area where there are no S/R levels. I'm looking at the NQ right now and it's trading above it's recent historical levels, so there are no S/R lines to use as reference.

Before answering, let's first have a look at NQ at the open of this particular session. I've displayed a 30 minute chart so that we can see where it's opening with reference to the last couple of sessions.

 

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Who Will Give Up First?

Last weeks newsletter article (“The Most Important Question You Can Ask”) generated quite possibly the second largest email workload ever (behind the 4-day backlog generated by “6.18 Reasons Why Fibonacci is an Illusion”). The feedback was all incredibly positive and supportive of my efforts with the YTC site. Thanks to all who responded. It’s greatly appreciated.

The feedback also generated some followup questions by a YTC reader, Krasimir, which I thought would be well worth sharing.

Before we get to that Q&A, if you have not read “The Most Important Question You Can Ask” then please read that article first. In fact, even if you have read it I advise a quick review of the main concept.

I’ll also place a copy of the second image from that article here, to review as you read through the question:

 

 

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Asian Session False Breakout

Wednesday’s price action (3 Nov 2010) in the GBP/USD provided a good reminder of the importance of being aware of the key market structure and timeframe influences that exist in our markets.

In forex, one of the most obvious features is the typically narrow range Asian Session. (See here for a related article on the forex trading sessions)

While a breakout of this narrow range can often lead to great trending moves, an even better scenario occurs when we get a false breakout.

So… here’s a rule to add to your Lessons Learnt book: A failed breakout of the Asian Session range has a high probability of a trending move in the opposite direction.

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