Tag Archives: Support & Resistance

Targeting the Overnight High or Low – 2

 

Last week we discussed one of my current favourite plays for the first 30-60 minutes of the session – targeting the overnight high (ONH) or overnight low (ONL).

You can review last week's discussion here.

Just a few hours after sending out that email the market opened again. And the same concept played out once more. Let's check it out.

<image: Targeting the Overnight High or Overnight Low>

<image: Targeting the Overnight High or Overnight Low>

<image: Targeting the Overnight High or Overnight Low>

You don't have to manage your trades like this. It's just the way that makes most sense to me. If there is any threat of a trade moving into negative territory, I prefer to scratch it and reassess, rather than holding and hoping for it to recover.

Sometimes that works to my advantage. Other times it doesn't.

This method of trade management does require you to be completely comfortable with re-entering.

If you're not able to easily re-enter, you'll be better operating with a wider stop and a more passive set & forget style. On this particular day, your trade would have worked out fine.

Back to the trade…

<image: Targeting the Overnight High or Overnight Low>

<image: Targeting the Overnight High or Overnight Low>

As mentioned in the prior article, there is a very high probability that the overnight high or overnight low will be hit at some point during the session.

And a good probability that it will occur within the opening hour of the session.

I could give you stats for the last few months. But I'd rather you find them yourself. You'll learn more this way.

If it interests you, spend some time over the weekend to review the prior two to three months to get an idea of just how high these probabilities are.

And then monitor the concept in coming weeks in your own markets. Perhaps you'll also find the overnight high or overnight low provide nice targets for early trade opportunity.

Please realise though – this is NOT the setup. The concept we're discussing here is simply selection of a high probability target. Take whatever setups you normally take from the open. Manage risk as you normally would, because they won't all work. But when they do work, the fact that the target is backed by some really high probability stats, can make it quite easy to hold.

Sometimes they work really well:

<image: Targeting the Overnight High or Overnight Low>

But occasionally, not so well.

The very next day fails to reach both the ONH and ONL. If you held a trade for either of these targets, it would have fallen well short.

<image: Targeting the Overnight High or Overnight Low>

There are NEVER certainties. No matter how high the probability, some targets will fall on the losing side of the stats. So manage risk, as per normal. And expect a challenge. If it hits the target quickly, as it sometimes will, consider it a bonus.

Happy trading,

Lance Beggs

 


 

Targeting the Overnight High or Low

 

I've become rather fond of targeting either the overnight high (ONH) or overnight low (ONL) during early session trading.

If you're new to this idea, schedule some time to look back at the last few weeks of charts and take note of how many times they hit. For the ten sessions leading up to today's trading, nine sessions have hit either the ONH or ONL. Six of these occurring in the opening 30 minutes of the trading session. Seven within the opening hour.

So not only can we use the ONH/ONL as levels to trade off. But they also offer a price target for PB/CPB trade opportunity early in the session.

Of course, some happen too quickly to offer any opportunity. But otherwise, if the bias is clear and a valid setup is in place with sufficient room to the level, take the trade.

Let's start with a 30 minute chart to get some "bigger picture" context.

<image: Targeting the Overnight High or Low>

Dropping to the 1 minute trading timeframe:

<image: Targeting the Overnight High or Low>

<image: Targeting the Overnight High or Low>

<image: Targeting the Overnight High or Low>

<image: Targeting the Overnight High or Low>

<image: Targeting the Overnight High or Low>

Before you even consider looking for a trade entry, you need a target. You should have some sense of WHERE the market is going.

The ONH and ONL are two levels which I like to use as a price target in the opening 30-60 minutes of a session.

Have a look at recent sessions in your preferred markets. How many times has the market hit the ONH or ONL? How soon within the session?

Perhaps you'll also find they act as good initial price targets for early session trades.

Happy trading,

Lance Beggs

 


 

Using Pre-Session Data to Confirm Levels

 

The following text and image were shared recently through both the YTC facebook and twitter pages.

  • My first action on Monday mornings upon opening my charting platform…

 

My first action on Monday mornings upon opening my charting platform...

Actually, it's one of the first things I do every day.

This is the key part we're discussing today:

Using pre-session data to confirm levels

Let's stick with the same timeframe but move forward to the market open at 09:30am.

Using pre-session data to confirm levels

Sometimes analysis of pre-session data offers nothing at all to confirm the relevance of previous session levels.

Sometimes it will allow us to invalidate these levels, when we see price slice through them with absolutely no reaction at all.

And sometimes, like in this case, it helps to validate a level as being still "potentially" significant.

Friday's low will be on my mind as I commence trading today.

Let's see how the opening sequences played out on the trading timeframe.

Using pre-session data to confirm levels

Using pre-session data to confirm levels

(If you're not sure what I'm looking for, see here to find out how I trade!)

Using pre-session data to confirm levels

Using pre-session data to confirm levels

Sometimes analysis of pre-session data offers nothing at all to confirm the relevance of previous session levels.

Sometimes it will allow us to invalidate these levels, when we see price slice through them with absolutely no reaction at all.

And sometimes, like in this case, it helps to validate a level as being still "potentially" significant.

If you prefer to trade with RTH data (pit session data) in order to take advantage of opening gaps, that is absolutely fine.

But at least take a quick look at the ETH data (overnight). See where it has traded with respect to the prior day. Where did it find movement quite easy. And where did it find did it find support or resistance.

This might just provide important information that can help once the opening bell has rung and trading has commenced.

Happy trading,

Lance Beggs

 


 

Trading Failed Expectations

 

The following YTC Social Media post was just about a perfect example of the concept of trading failed expectations.

Obvious expectations - proven wrong

I received a question on the facebook post about trade entry. So let's look at the trade I took in this area – a test of Low-of-Day support.

Noting of course that there is one significant difference. I traded the 1 minute timeframe; not the 3 minute timeframe.

The 3 minute chart was used for the facebook and twitter post, simply because it beautifully demonstrated the concept that I was trying to highlight. It wasn't about my trade or my timeframes. It was about the general concept of looking for opportunity in places where "obvious expectations" are proven wrong.

The same idea applies on the 1 minute chart, of course. And it's the reason underlying my trade.

But this time… it's a WHOLE LOT MESSIER!

The good trades move quickly to the targets. But we don't always get good trades. And there's not much to learn from them. The messy trades though… much more common and much better for "lessons".

Here's the same test of Low-of-Day support in the one minute chart:

The same pattern on the 1 minute chart

The strong drive towards the support level appears as before, creating an expectation in the mind of many market participants for continuation lower. Personally, I expect that as well (YTC PAT Sixth Principle). And my plan is to wait for the break and assess the likelihood of either breakout failure or breakout pullback potential.

But when a move this strong stalls… and breaks back above the next TTF candle… well this is NOT what would be expected of a "strong" bearish market.

Let's wait and see what happens on a retest. If the retest continues with strength, I'm back with the original plan (watching for breakout failure or breakout pullback potential). But if the retest cannot continue lower… well I just love these setups. They can snap back higher quickly. So I'll be looking to enter LONG on a test of the support level, based upon the fact that the market has shown it can't go lower and the prior bearish strength was an illusion (liquidity vacuum perhaps!).

The market sets up that scenario nicely, as we see in the above image with the first failure to continue lower. Look for lower timeframe entry in the shaded region.

In this case though, there is no quick movement higher. And the market falls for a second attempt to break support.

This provides a second opportunity to get long, as the market is once again unable to continue lower. But it's quite a messy one with some chop at the turning point.

This is the reality of the markets. We all want trades that move quickly to their target. But that's not what we always get. You need to decide how you will deal with these "messy" setups. Some people prefer wider stops, to allow for chop and imperfect decision making at the entry zone, willing to accept the reduction in R:R potential. Others, like me, prefer to keep the stops tighter. But to be effective in that regard you need to be willing to scratch and re-enter. Don't let an initial failure prevent you from trading the second chance entry.

My entry is triggered on the lower timeframe charts (a combination of 15 second and YTC Scalper 2-Range). But for the sake of this article I'm going to show the 30 second chart, which displays all the information you need to see while also fitting nicely on the one image. So let's check it out.

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Good Losses

 

This trade lost… and I'm completely ok with that.

I'll explain why below. But first, let's look at the trade.

Good losses - I'd take these trades every time

Looking at the left first (daily chart) we see that today's session (A) has broken below the prior day (B) and is closing in on yearly lows (C).

The chart on the right (60 min chart) allows us to see a little more detail.

Today (Friday) opened right at the prior day's low support. After a brief test higher it broke two levels of support (prior day's low plus an intra-day low from the 13th January). Price is now retesting the 1/13 support, now resistance.

Let's look at the trading timeframe chart…

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Structural Trades

 

One thing I love to do over the Christmas & New Year break is to schedule a couple of days for Market Replay learning. Last Sunday & Monday were scheduled for my replay sessions. The ability to speed up the market data in-between key decision making areas means that I can squeeze in half a dozen sessions over a two day period, rather than just one a day.

This is an opportunity for me to address areas of my trading that have underperformed during the previous year, and to experiment with slight tweaks to my trade execution and management style.

One area of underperformance I've identified is the fact that I'm leaving a lot of potential profit on the table whenever gifted a structural trade. My trade management style has drifted over the last couple of years towards having less patience with trades (quicker to close out). This works fine when the environment supports earlier exits. But for a structural trade that offers a much larger than usual potential return, it means I'm leaving a lot on the table if I can't or don't get back in on a subsequent entry.

When identifying a trade in a structural location, I will be aiming for more patience with my trade management.  This will involve slightly longer time-stop. And a wider trailing-stop. The key difference though is in mindset; the biggest challenge for me will be keeping my hands off the trade.

What do I mean by good structural locations?

Essentially, I call it a structural trade when the entry and targets are based upon key higher timeframe market structure features.

This would be areas such as the Prior Day's High or Low, or the current High of Day or Low of Day. Our aim would be to hold at least a partial position from one of these locations to another.

Let's look at an example from one of my replay sessions. These sessions were in the emini's rather than Crude Oil, so I was not completely familiar with the outcome (it's important to make replay as realistic as possible). The following charts will step us through the trade location, entry and management decisions for one of these trades. I like this one as it wasn't a smooth path to the target and involved an exit and subsequent re-entry.

Let's look at the trade:

Structural trades - concept

As mentioned, I call it a structural trade when the entry and targets are based upon key higher timeframe market structure features.

In this case entry in the vicinity of the current Low of Day, targeting the High of Day.

Let's look at the entry.

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Open in the Vicinity of Prior Day’s Low Support

 

Last Friday we looked at a couple of examples of Market Structure journal entries, one of which involved a weak emini Dow open in the vicinity of the prior day’s low. Let’s quickly review this example, and the lesson it offered.

If you want to review the whole sequence you can see it here: http://yourtradingcoach.com/trading-business/a-simple-step-to-becoming-a-better-trader/

But otherwise, let’s just look at one image which shows the important point – A market open in the vicinity of the prior day’s low offers exceptional R:R if testing the support level with weakness.

Weak test of prior day's low support 

It’s my hope that you did get time to read last week’s article.

And that you saw the value in placing that entry into your Market Structure journal, or at least some notes with regards to the lesson.

And if you trade the emini Dow, it’s my hope that this concept was fresh in your mind when Monday opened.

Because it happened again!  🙂

Let’s look at Monday’s YM charts…

Weak test of prior day's low support

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