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

 


 

Written by

YourTradingCoach – Admin

10 Comments to “A Simple Alternative Means of Assessing Short-Term Bias & Market Strength/Weakness”

  1. Juan Carlos says:

    A fantastic article. I hope you continue to expand the information.Thank you very much.

  2. Nick says:

    Gr8 article Lance! And truly eye opening.

  3. Alex Potts says:

    I love the idea because it is so simple. I went ahead and read all the articles with the opening range tag and will definitely keep my eye on the opening range of the first 1 minute candle as I love to trade the open.

    My question is what is the significance of continuing to plot a second 1 minute range after the first 30 minutes has elapsed? I get the theory within using the first 1 minute candle as your S/R range. Emotions are high and it may give an early clue to where the markets early S/R is. I guess I just don’t find the logical significance in plotting the following ranges.

    Regardless, I will keep my eyes out for the opening ranges and am interested to see what I find! Thanks for the article!

    • Lance Beggs says:

      Think of it as being kind of 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.

  4. Victor says:

    Great article Lance! Thank you.!

    There are several ways to assess strength and weakness of the trend – change of depth, momentum or projection of price waves. I do not have time to analyze all parameters at the same time. When I finish, I need to start again, because a new wave is being formed. Will it be correct to limit 2 parameters, or even better one single? Which one?
    I understand that this can be very individual, but is there any general recommendation?

    • Lance Beggs says:

      It’s interesting that you say this – “I do not have time to analyze all parameters at the same time.”

      It doesn’t actually take any time. You can see all of this instantly.

      Imagine you’re learning to drive a car and you say to me, “I can’t be expected to look outside at the other traffic, plus road conditions, plus at the same time manage the clutch, accelerator and break, plus gear stick, plus steering. It’s too much. Can I limit myself to just one or two of these?” The answer then is, of course, “No. You need to practice more until skill levels allow you to intuitively do all of this at once.”

      The same applies to assessing strength and weakness in a trend. Continue practicing until you can look at a chart and immediately see the signs. Don’t limit your input. Work to improve your skill at perceiving and understanding the input.

      • Victor says:

        Thanks for the answer, Lance. The analogy with the car is excellent!

        But one more unclear moment. Suppose a weakness appears in the trend. We see this from a change in Depth, Projection and Momentum. But the degree of change of each of these parameters is different. It may be, for example, that one of the parameters does not change at all.
        Is it possible to “summarize” the results of all parameters? The importance of the parameters is the same? Is there a most important parameter that should be preferred if the parameters show a different value?

        • Lance Beggs says:

          Again, I’m not sure how to answer this. It’s not how it works. All are important signs. But they won’t all show up every time. Recognise strength or weakness in whatever form it presents. And if that is important information when placed into context (with market structure etc) then that information is an input into your analysis and trade decision making. But I wouldn’t say it’s possible to rank each type as either more-important or less-important.

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