Quote from kinggyppo:
The first premises is that the opening range is statistically significant. Fisher estimates that is the high/low for the day around 20% of the time. You then look for what's called an A up in which the stock or commodity
spends a certain amount of time over the a value which is plotted in advance based on a volatility measure. There is only one A up per day. In the example given in the book when the price of crude reaches 25.77
and A up is made and you go long crude there. The A value is plotted in advance based on a proprietary indicator. In this thread we have figured out that the calculation being based off of some percentage of the average true range of the product. Personally I like using 20% of a 10 period average true range. There is no set in stone answer for the average true range and and time period to use. I wouldn't doubt that different traders for his firm use different values as well. In prior discussions on this thread, we came to the conclusion that low volatility will give you fairly tight A and C values, with the opposite for volatile markets. If you look at Bollinger bands you will see a similar phenomenon. I would refer you to the "know your ACDs " chapter of the logical trader.
Your second question is difficult for me to answer, in general the 930 Eastern time open is critical for many commodities has more volume is traded during normal business hours. However, one could argue in the ES for example that the overnight Globex high/low is important. Again, this goes to your trading style and also the timeframe you are using. I would use the pit open as you stated for most markets. The Nikkei for example opens at X time in Japan, I would translate that to New York time, and use that as your open. I hope I haven't confused you further. I find the basic ACD method to be a little confusing at first, I think I have read the opening pages over 100 times. Remember he is giving you a complete trading system with entries and exits that are rule-based so take some time and try to get a good working understanding of the system before you commit real capital. Maverick is our resident expert here and has a lot of useful commentary regarding the system.
Ok thanks that was helpful I'll be delving more into the book and this thread more (I'm 1/3 through it).
I'm still having some difficulties understanding how to calculate A and C values. I'm not looking for specific levels as I understand that it depends on each traders style and personality. Where I'm having trouble is whether the ATR to use is a daily or just the opening range ATR? You seem to be saying that it's the opening range ATR but Mavrick says on the first page that you can come up with the values using a 5 or 10 day ATR. That's why I'm confused I began reading this thread before getting the book thinking values are calculated using a daily ATR. Can you clarify this for me?
