Keeping It Simple II

Quote from spedblavio:



You didn't find the range set before 9:49 (1022-1028.50) to be adequate to trigger entry at 1030.50?
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Personally, yes, since there was an opening gap. But if one doesn't play gaps and used 1000 as the timeframe (I assume the reason for this is to wait for gap action to be over), then the higher entry would be more appropriate.

Of course, waiting for thirty minutes before entering is nothing new. The problem is that with narrower ranges, if one waits to enter until after the gap is filled, there's generally little upside left.

--Db
 
Db,

a quick question about gaps and the ORB.

If the gap is being filled right before the open range was set and the trigger is slightly above or below the trigger for the ORB.

Do you take the trade considering that the mkt at times just covers the gap and stalls?

And in these cases, any signals to take note of that may hint that the move will continue as in today, or if it will stall after covering the gap.

Thanks.
 


I can't give you an answer that will apply in all cases. You're going to have to review charts yourself and make your own choices, but twenty or thirty ought to be enough to enable you to work out some probabilities.

First, you have to look at the size of the gap. According to Frederickson, 71% of gaps of 1.5% or less fill. Once they get wider than that, the fill rate is cut in half. So you may decide that you're not going to play gaps that are greater than 1.5% due to the probabilities.

Then, look at these gaps that fill and note how fast they fill. Do they all fill by 1000?

Then, note how often the price fills the gap then fades. Note how often the price fills the gap, retraces, then resumes its move, creating a trend.

Then, make some choices as to how vulnerable you want to be. Using a long as an example, do you want to let price come all the way back to 5pts below your entry price? Or do you want to set a much tighter stop in the event of a fade or a retracement? If there's a fade, are you going to play it? How? If there's a retracement, are you going to play that? How?

Filling a gap is not creating a trend. Filling a gap is almost autonomic, like a sneeze or a hiccup. A trend requires a bit more conscious effort, which is demonstrated when the gap is filled, price retraces, then resumes the original direction rather than retreating back to a neutral position.

You may decide, however, that you just can't or don't want to screw around with any of this so early in the morning. Lots of people don't. Which is why the strategy lets the opening range form and does nothing until it's finished, which usually takes about 20 minutes.

But don't take my word for it. Review the first half hour of the last thirty charts. One thing you'll find is that it is extremely rare for a gap to fill and rocket ahead without pause. Even today there was a lag of nearly 15 minutes after the gap was filled before price resumed the advance.

If you're going to play the gap at all, you have to decide whether or not you're going to fade it once it fills. If you're not, then all you have to do is place your 2pt entry stop above the opening high (or below the opening low) and go on from there.

--Db
 
Db, if you did not get short in the first few minutes this morning, would you have traded a BO of the 1073.00-1079.00 range that developed?
 
Well, I didn't particularly like that one and was actually thinking more about where my paper short from 1078.00 should've been stopped out, if at all.

Just wondering if you thought it was a valid resistance point or if the whole thing was too much of a V anyway.

My short entry was on a 1min retracement after break of the opening low of 1082.00 (a very early range), so I held through the subsequent congestion as it mainly occurrd on the market's dime.

Initial stop was only 3pts away, above the retracement I sold. Moved it down a point after making new low at 10:15, and down to a tick above BE on the next new low.

After that I started wrestling with just the right balance between letting the market do it's thing and not being too much of a chump needlessly.

I have the low target pegged at 1059.00, do you concur? (I don't know why, but my daily range figures seem to vary a bit from what you've stated). How close is close enough to start tightening?

I had stuff in my head about moving the stop to previous reaction highs when TL breaks occur, but that's more for multiple contracts, right? Or was the nearness to target and break below yesterday's low enough to start getting defensive?

I know this is getting into discretionary areas, not looking for absolute answers but always interested in your thoughts.

On the one hand, i'm just about ready to buy into the all or nothing trade management (after BE and until it reaches target, it's the market's money and the market can do whatever it wants with it), but on the other hand if the market is trying to tell me the jig is up and I can have whatever's left, I want to listen.
 
Quote from spedblavio:

I have the low target pegged at 1059.00, do you concur? (I don't know why, but my daily range figures seem to vary a bit from what you've stated). How close is close enough to start tightening?
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That's correct. If the target isn't reached, one option is to exit at what would be your signal to take the other side of the trade. That might be a break of the trendline or a break of some sort of resistance or some pattern you like.

--Db
 
Quote from spedblavio:

I had stuff in my head about moving the stop to previous reaction highs when TL breaks occur, but that's more for multiple contracts, right? Or was the nearness to target and break below yesterday's low enough to start getting defensive?
More...

Drawing any conclusions, much less formulating any hypotheses, is a waste of time on days like this. I stopped early simply because nothing was going on.

--Db
 
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