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| Examples of Narrow Range 7 Inside Days (IDnr7) in the Nasdaq. |
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| HERE |
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| There are only three things price can do: 1. Breakout from a Range and Trend. 2. Breakout from a Range and Reverse (False Breakout or Stop Hunt). 3. Trading Range between Highs and Lows of sessions, days, weeks, months, quarters, years. HERE |
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| Crude Oil ranges to break: Inside Session, Inside Day, Inside Week, Inside Month, Inside Quarter, Inside Year. |
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| The Marker Makers Cyclic and Fractal Price Auction Process is mirrored in Price Action: Expansion is when Price moves quickly from a level of Equilibrium (50% of range). Retracement is when Price moves back inside the recently created Price Range. Market Makers look to reprice levels of imbalances that were not efficiently traded. Reversal is when Price moves the opposite direction that current direction has taken it. Market Makers have ran a level of Stops and a significant move should unfold in the new direction. Liquidity Pools are just above an old Price High and just below an old Price Low. Consolidation is when Price moves inside a clear trading range and shows no willingness to move significantly higher or lower. Expect a new Expansion near term. |
oOo
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| Weekly Cycle and Market Structure in Gold (1 hour chart): Daily and Weekly Highs and Lows, Daily and Weekly Pivot Levels, Inside Days, Outside Days, Daily and Weekly Accumulation-, Extension-, and Distribution-Levels, Breakouts, False Breakouts, V Patterns, M & W Patterns, Peak Formation Highs and Lows. |
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| Three Things Markets do: 1. Breakout and Trend. 2. Breakout and Reverse (False Breakout). 3. Trading Range (High and Low). |
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| Traders Laboratory (2007) - Taylor Trading Technique |
A day in which there is a new high followed by a lower close
is a downwards reversal day (RB). An upwards reversal day is a new low followed by a
higher close. A reversal day by itself is not significant unless it can be put
into context with a larger price pattern, such as a clear trend with sharply
increasing volatility, or a reversal that occurs at the highest or lowest price
of the past few weeks. Short-term reversals are likely after wide-ranging (WR4) and narrow-ranging days (NR4), especially when the open, high, low and close of the daily price bar are altogether above or below of a simple three-day moving average line of daily close prices.
A wide-ranging day is likely to be the result of a price shock, unexpected news, or a breakout in which many orders trigger one another, causing a large increase in volatility. A wide-ranging day could turn out to be a spike or an island reversal. Because very high volatility cannot be sustained, a wide-ranging day will likely be followed by a reversal, or at least a pause. When a wide-ranging day occurs, the direction of the close (if the close is near the high or low) is a strong indication of the continued direction. An outside day (OB) often precedes a reversal. An outside day can also be a wide-ranging day if the volatility is high, but when volatility is low and the size of the bar is slightly longer than the previous bar, it is a weak signal. As with so many other chart patterns, if one day has an unusually small trading range, followed by an outside day of normal volatility, there is very little information in the pattern. Context and selection are important.
Toby Crabel (1990) - Computer studies suggest that Inside Days (ID) provide very reliable entries in the S+P market. The data used in the studies is daily open, high, low and close prices from 1982 to 1987. All of the following patterns are defined for a computer but can be seen easily on a daily bar chart.
The market action implied in each pattern is a short-term trend with a loss of momentum on the Inside Day. The open on Day 1 is in the opposite direction of the trend and is an indication of a shift in sentiment. This shift in sentiment causes those who still have existing positions against the opening direction to liquidate longs or cover shorts. Participants covering their positions is more than enough to tip off a directional move.
A slightly different perspective on the same type of pattern is to look for a retracement to the previous day's close after the opening and take a position at that point in the direction of the open. I tested four patterns to demonstrate this principle.
How can you use this information? It suggests a strong bias in the direction of the open especially after a higher open. The prolonged bull market obviously had an impact on these results but in general, a counter move back to Day 2's close after the opening direction is known, should be observed for a loss of momentum and possible entry in the direction of the open.
Another totally different test in the S+P has same interesting implications and could be tied in with the previous patterns. On any day that the market has moved two hundred points above the open intra-day, it has closed above the open ninety percent, of the time. Also, on any day that the market has moved two hundred points below the open it has closed below the open eighty-eight percent of the time. This was during the period from 1982-1988.
An application of these results is as follows: Enter in the direction of the initial trend on any low momentum move back to the open and exit on the close of the session. This can be done after the initial trend is established with a two hundred point move in one direction off the open. The main qualification is price action on the pullback. A high momentum move back through the open leaves the initial two hundred point move in question. This can also be applied after an Inside Day very effectively.
I think it is necessary to shed light on how extraordinary the results for Inside Days are: A test on a sale of a higher open or buy of a lower open with no other information to work with provides a winning trade fifty-six percent of the time when exiting on the close the same day of entry. This suggests a natural tendency for the market to reverse the opening direction by the time of the close.
This natural tendency is reversed after an ID. Why? What is it about an ID that produces follow through after the open? An ID is narrower than the previous day. Any narrowing day shows loss of momentum and when within a previous day's range it forms a congestion area. A congestion is directionless trade with the market searching for new information. A temporary state of balance or equilibrium exists.
There is a tendency for the market to trend after a congestion. If an Inside Day is a valid congestion, it will produce an imminent trend day. One can assume from the above tests that there is a tendency to trend after these patterns (ID). These tests support the premise that Inside Days are valid congestion areas. It appears that market participants act on the first piece of information indicating trend after the Inside Day - the open. Also, the direction of the close on the ID will provide further clues on the direction of the breakout when added to the information of opening direction. The increase in percentage profit and relative profits when these variables are added supports this conclusion.
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| The ID pattern acts as a continuation 62% of the time. A breakout occurs when price closes either above the top of the pattern or below the bottom of it. Since inside days act as a continuation pattern, expect the breakout to be in the same direction as the inbound price trend. Wait for price to either close above the top or below the bottom of the pattern before taking a position. The ID can form midway in a price trend, just like bull flags, wedges and pennants. |
Why do these indications work so well in the S+P? The S+P generally is an urgent market. The distinguishing characteristic of this market is its tendency to trend throughout the session. This market is notorious for big, fast moves intra-day. Peter Steidlmayer (Markets and Market Logic) calls it a One-Time Frame market. One may reason that in a One-Time Frame market the inside day is a more reliable indication of upcoming trend than in a Two-Time Frame market. The market principle that is in force is contraction/expansion. The Inside Day is contraction, and in a One-Time Frame market 1-Day contraction is all that is necessary to tip off a directional move.
In summary, the above tests suggest that an Inside Day is a valid congestion area and it follows that all breakout rules for congestion areas should be implemented after an Inside Day forms. The resulting breakout is expansion.
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| Three-Bar Inside Bar Pattern by Johnan Prathap - HERE & HERE |
[...] The Principle of Contraction / Expansion is defined as the market phenomenon of change from a period of rest to a period of movement back to a period of rest. This interaction between the phases of motion and rest are constantly taking place, with one phase directly responsible for the others' existence. A Trend Day is defined as a day when the first hour's trade comprises less than 10% of the day's range or the market has no dominant area of trade throughout the session. Trend days are characterized by an opening near one extreme and a close on the opposite extreme of the daily range. Trend days fall into the category of expansions. Congestion is a series of trading days with no visible progress in either direction. Usually associated with narrow range days or non-trend days. Contraction is a market behavior represented by a congestion or dormant period either short-term (ID) or long-term narrow range (8 Bar NR) and usually reaching its narrowest phase at the end of the period.
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| Up-Turn on Dec 26 (Wed) on decreasing volume + (P/C Ratio + RSI2 @ Extremes + NR4/NR7 + Negative Close above 3DMA) = High + Sideways to Down on Dec 31 (Mon) into Jan 03 (Thu) = Perihelion | Jan 5 (Sat) = New Moon + Solar Eclipse |
