Tag Archives: Opening Range

A Simple Alternative Means of Assessing Short-Term Bias & Market Strength/Weakness – Part 2

 

I've long been a fan of Opening Range (OR) theory and the way that it allows us to quickly and easily identify a "bigger picture" session bias.

So last week we played around with that concept and explored it's application in new areas of the chart.

We took the concept of OR theory and applied it not just to the opening bar of the session, but to multiple bars throughout the session as well.

In my own trading, using the 1-minute Trading Timeframe, I apply this to the opening candle for every 30 minute block of data.

This allows me to not only have the "bigger picture" session-wide bias, but to also get a feel for the bias on a shorter timescale as well.

Think of it as being like multiple-timeframe analysis. The standard OR provides a bigger picture session-wide bias. The 30 minute OR’s provide a picture of the shorter-term bias “inside” that bigger picture bias.

You can find last week's article here if you missed it – http://yourtradingcoach.com/trading-process-and-strategy/a-simple-alternative-means-of-assessing-short-term-bias/

At the most basic level, analysis of a single 30M OR block can provide us with two primary pieces of information:

  1. A sense for the short-term directional bias. Price movement above the OR is bullish. Price movement below the OR is bearish. And price movement stuck at the OR is neutral.
  2. A feel for the underlying strength or weakness within this directional bias. Fast-flowing price movement with little overlap shows a strong supply/demand imbalance. Whereas overlapping, choppy action suggests a much more balanced market.

 

Let's look at some examples of this information as applied to individual 30M blocks:

Analysis of Individual 30M OR Blocks

Analysis of Individual 30M OR Blocks

Analysis of Individual 30M OR Blocks

Analysis of Individual 30M OR Blocks

The real strength of this method though, is not in analysis of an individual 30M OR block.

Rather it comes through assessing the information from the current OR block within the context of either the overall session bias or the preceding couple of OR blocks.

Resolving Bias Conflict.

Resolving Bias Conflict.

Resolving Bias Conflict.

Resolving Bias Conflict.

Resolving Bias Conflict. 

If you like this, I highly encourage you to play around with the charts and see what other information you can gather, in relating one single OR block to those preceding it.

Again though, to reinforce a point from our prior article…

This is not my primary tool for conducting analysis.

I assess short-term bias through six "rules of thumb" which allow me to project the current trend forward in time, identifying the highest probability path for the next couple of price swings. I share this method in my eBook series (Chapter 3). The same applies for the method I use to assess strength and weakness within the trend. Also Chapter 3.

Short-term OR Theory is something that has crept into my analysis process over time, which acts to nicely complement the existing methods.

Sometimes it acts simply to confirm my other analysis. And other times it provides a slightly different perspective.

Either way, I find it adds value.

If this idea appeals to you, try it alongside your current methods of analysis and see if you find the same benefits.

Happy trading,

Lance Beggs

 


 

A Simple Alternative Means of Assessing Short-Term Bias & Market Strength/Weakness

 

I highly recommend spending some time every now and then just playing with your charts.

Try something new.

Or see if you can apply old ideas in new ways.

Just occasionally, you may find something useful.

Today I'd like to share a simple tool that I've been using for the last few years, alongside my existing approach to assessing short-term market bias and the strength or weakness within the price action.

IMPORTANT NOTE: This is not my primary tool for conducting analysis.

I assess short-term bias through six "rules of thumb" which allow me to project the current trend forward in time, identifying the highest probability path for the next couple of price swings. I don't share this in the newsletter or blog (sorry!). If you're interested you'll need to see my ebook series (Chapter 3). The same applies for the methods I use to assess strength and weakness within the trend. Also Chapter 3.

What we discuss today is something that has crept into my analysis process over time, which acts to nicely complement the existing methods.

Sometimes it acts simply to confirm my other analysis. And other times it provides a slightly different perspective.

Either way, it adds value.

This discovery came about through "playing" with Opening Range theory and seeing where else it could be applied.

We've discussed the Opening Range previously in a few articles if you want some background reading – http://yourtradingcoach.com/tag/opening-range/.

Here is the general concept:

Standard Opening Range theory 

So now, let's apply this in a new way.

I first hinted at this idea way back in 2013 via a series of two facebook posts:

First this one…  (and I guess I've kind of given away the answer!!!)

An Alternative Use for Opening Range theory

 

And then the next day, this post:

 

An Alternative Use for Opening Range theory

I've never seen anyone else do this. I'm not sure why? I think it's an absolutely brilliant method of maintaining an intra-session bias. And it works just beautifully as an additional method to support other YTC Price Action Trader analysis.

The hourly open is a significant occurrence, visible to traders on all timeframes from 1H down to 1M. As such, opening range theory applied to the first Trading Timeframe candle at this point works well in giving a quick indication of current bias as either bullish, bearish or neutral.

The same applies for 30 minute opens, if you prefer to look at this even more short-term. My preference has shifted to using the opening 1 minute candle, each 30 minutes. I find this works well for the 1 minute trading timeframe. If your trading timeframe is higher then just increase the size of the segment as appropriate. Those trading 3 or 5 min charts will likely find one hour segments better than 30 minute segments. Higher trading timeframes may even find value with 2H or 4H groups.

Again… I'm not sure why we don't see this used more often. Give it a try! I love it!

I'm not going to reveal all I've found in using this approach. I want you to play with it. Explore the idea on some charts. Run it alongside your current methods. If it adds no value, drop it. But maybe… and I suspect this will be the case for many… it will become a quite useful tool in your trading toolkit.

A quick starting point though:

Within the context of the "bigger picture" session bias and other analysis information available from standard opening range theory, we now have a method of assessing the same information on a shorter timescale.

So as with the standard approach, price movement from the 1H or 30M Opening Range gives us insight into either bullish or bearish or neutral bias. And the ease with which price moves away gives insight into the strength and weakness.

But now, instead of just being able to reference price to the Opening Range, we also have the ability to:

(a) Reference the shorter-term 1H or 30M bias information to the longer-term session bias information, as the shorter-term acts to move with or against the longer-term bias.

(b) Reference the current 1H or 30M bias information to that obtained from the previous one or two 1H or 30M segments.

That is, we get information into the way that price is moving. Is it stable, maintaining previous direction, pace and volatility? Or is something changing?

I might leave this here for now.

Again, rather than provide examples, I'd like you to play with this idea and see what you think.

Plot an opening range box around the first "trading timeframe" candle each 30 minutes (or one hour).

If there seems to be any interest then I'll follow up with a part-two in coming weeks, looking at the short-term 30M Opening Range on a few price charts.

Happy trading,

Lance Beggs

 


 

Should I Avoid the First 10 Minutes?

An excerpt from a reader email:

How should one trade when the market opens?

I have found that it's somewhat a guessing game which way the market will trend during the first 10 mins as it sometimes gaps down & then reverses & trends up for the rest of the day.

Do you avoid the first 10 mins of trading as it is very unpredictable & highly volatile?

Response:

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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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There is a Lesson in EVERY Trading Session – Part 2

Feedback from last weeks article has been superb. So I thought I’d give some more examples here this week.

And I’ll use this idea as the initial concept behind a daily blog – commencing later today. 🙂

For these examples, we’ll look to a different market. This time the HSI (Hang Seng Index Futures) which I’ve been trading the last few days in an attempt to repay some of my sleep-debt (an Aussie east-coast lifestyle is not conducive to long-term trading of the US markets).

As mentioned last week though… the markets, timeframes, and chart overlays used in these examples are irrelevant. What’s important is the idea of finding a trading lesson in every trading session. And that applies in all markets and all timeframes.

 

Monday, May 9th, 2011

A beautiful spring pattern leading into continuation of an uptrend:

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Forex Opening Range Breakout Strategy

Opening Range breakout strategies are very popular in the stock and emini-futures markets. If you’re not familiar with these Opening Range breakouts, a Google search should also bring up more information than you can probably read in a lifetime.

To greatly simplify the strategy, it essentially involves identifying the high and low price from the opening period of trading (whether 5 min, 30 min, or whatever suits your needs) and then trading a breakout of that range. The theory being that the opening of a market is an emotionally charged period of time which then sets the bias for the day – trading above the opening range indicating bullish sentiment, while trading below indicates bearish sentiment.

But can a similar strategy be applied to the 24 hour world of the forex markets?

Absolutely!

The key is to use another market structure event as the de facto opening time. The most obvious one being the opening of the European trading session, as this session typically provides greater average range than the US and Asian sessions.

The following are 15 minute charts of the European session for this last week. The opening has been defined as the Frankfurt open. The horizontal black lines mark the opening range – the high and low of the first 15 minute candle (08:00-08:15 Frankfurt time, 17:00-17:15 on these charts). Note the significant opportunity available during each session, after breakout of the opening range.

 

Monday 30 Nov 09:

opening range breakout

 

Tuesday 1 Dec 09:

opening range breakout

 

Wednesday 2 Dec 09:

opening range breakout

 

Thursday 3 Dec 09:

opening range breakout

 

Friday 4 Dec 09:

(Although being Non-Farm Payroll day it is likely to provide a lower probability opportunity, so you might be wise to just pass on this day)

opening range breakout

 

This is of course not a complete strategy… there’s a lot of work to still be done.

  • How will you determine when to take the breakout, and when to fade it?
  • What exactly defines a breakout? Any breach of the range? A close beyond the range? A break of the high or low of the candle which closes beyond the range?
  • Is the stop best placed on the opposite side of the range, or somewhere within the opening range?
  • What actions will you take on evidence of a breakout failure, with price returning back within the opening range? You’ll note that many days produce a false breakout before then trending in the opposite direction, requiring the taking of a loss and reversing your position (see Wednesday and Thursday above for an example)
  • Is there some way to identify in advance the higher probability breakout direction?
  • Should breakouts only be taken in the direction of some greater timeframe trend?
  • How will you manage and exit the trade? Profit targets? Trailing Stop? Or should it be dependent on your bias for a trending or rangebound market?
  • Give that 2 days this week had false breakouts to one direction, before reversing and moving to great profitability, do you just pass on the first move and only take the second breakout?
  • Are results improved through using the UK open, rather than Frankfurt?
  • Are results improved through using a breakout of the Asian Session range, rather than the UK or Frankfurt opening range?
  • How should you handle volatility expected due to news releases?
  • Are results best with a 5 min opening range breakout, or 10 min, 15 min, 30 min?
  • Are the results better through a purely mechanical approach, with objective rules for entry and exit, or when discretion is allowed and entries are only taken when the price action and market structure support the trade?
  • Are you better just using the Opening Range breakout as a means of determining your bias (above the range is bullish and below the range is bearish) and then finding your trades through other analysis methods?

 

And that’s just what has come to mind right now as I type this article.

As you can see, there’s a whole lot more work to be done. However, it’s a great starting point for development of an effective and efficient way to trade the forex markets.

Best of all, the concept is simple.

And it’s based on market structure – trading at the time of the European session open – a point in time known for an increase in volatility.

If you’re still searching for a strategy that is both simple and effective, this might be just what you need. As always though, test thoroughly on historical data and then live on a simulation (demo) platform, before risking any real funds.

Cheers,

Lance Beggs.