Showing posts sorted by date for query toby crabel. Sort by relevance Show all posts
Showing posts sorted by date for query toby crabel. Sort by relevance Show all posts

Sunday, February 16, 2025

Six Million Pageviews

Thank you for your interest in my 'Snippets from the Diary of a Trader'. Six million pageviews. Amazing. Who would have thought. I created this blog in 2012, initially as a personal online backup for notes on what I picked up and developed from posts in Yahoo! Groups. 
 
 

I first became aware of the stock markets' potentials in the 1990s, when I made some considerable gains, driven by a combination of hearsay and pure luck. It was nice, but I had better things in mind. I was eager to start working as a young geologist across all continents. Being on missions, often facing poor or no internet and working in time zones far from London and New York, I didn’t seriously start trading until 2018.

I quickly realized that most of my earlier musings and ventures into Gann, Bayer, and various financial astrology concepts weren’t particularly helpful for my practical goal of making real money in the markets. I started with automated trading systems; the drawdowns and returns made me sick. This came to an end the moment I lost all of my hardware, software, files, and backups. During COVID-19 I shifted my focus back to patterns, market structure, price action, timing, and short-term trading setups and techniques.   

 
» The three traits that speculators must learn to manage within
themselves are confidence, fear, and aggressiveness. «
GOAT trading teacher.

Studying the works of Toby Crabel, Larry Williams, Richie Naso, Steve Mauro, ICT, Stacey Burke, Jevaunie Daye, D'onte Goodridge, Frank Ochoa, and Jeff Hirsch has been most helpful to my progress. They blew away all the retail-trader instruction crap I had previously gathered. Forever grateful. Snippets of some of their teachings are featured on this page: no indicators; reading naked bar-charts; knowing average, small, and large ranges; understanding logic and precision in patterns; accumulation, manipulation and distribution phases; ICT-lingo, concepts, setups, etc.. 
 
Short-term patterns in financial markets are governed by timed market maker algorithms. They repeat over and over again. Price always moves from liquidity to inefficiency and vice versa, or from internal liquidity to external liquidity and vice versa, and there are only three things price action can do: break out from a range and trend, break out from a range and reverse, or range between previous highs and lows. Hence there are three main patterns: range, breakout-and-trend, and reversal patterns. Pump and Dump. At first I didn't really notice nor understand these patterns, order blocks, imbalances and liquidity levels, until it became impossible not to see them. They are everywhere, and precise to the pips. 
 
» Think like a criminal. «
Veteran Wall Street Trader Richie Naso. 

It’s been quite a journey; one never stops learning. While I'm aware that there are myriad other, maybe smarter, and more efficient ways to make more money more quickly in the markets; my approach works just fine for me. I primarily trade the S&P 500, the NASDAQ, Gold, and Crude Oil. Peace of mind, health, endurance, discipline, patience, and risk management are most important. Never bet the farm. Greed is not good. Have a coat for rainy weather. I hope you find value, inspiration, shortcuts, and benefits in my snippets. Spread the love, and may peace and God's blessings be upon you.
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Monday, January 20, 2025

How Markets Move: The Natural Cycle of Range Change │ Larry Williams

Markets typically shift from small ranges to larger trend moves. When the market is in a large trend move, wait for it to settle into smaller ranges before getting involved. This gives more reliable setups when the market trends again. Market tops generally occur when the price closes well off its low, while market bottoms happen when the price closes near its low. Most traders get emotional during these times, buying at tops and selling at bottoms. Once you understand this, it becomes easier to make smarter trades.

Small Ranges Beget Large Ranges. Large Ranges Beget Small Ranges.

Markets move from congestion to creation (expansion), transitioning from small ranges to larger, more defined trend moves. A small range signals buildup, and a large range signals an impending trend. If I see a small net change from open to close, I know a large trend move is likely coming and am prepared to act on it. Here’s an example using the NASDAQ: Notice how volume fluctuates throughout the day: heavy volume in the morning, a dip in the middle, and a surge towards the end. 

"U" shaped intraday: Heavy volume in the morning, a dip in the middle, a surge at the end.

This pattern is consistent across markets. It’s like a freeway: traffic is heavy in the morning, dies down in the middle of the day, and picks up in the afternoon. Understanding this helps day traders identify opportunities in the morning and towards the end of the day, while avoiding the midday lull. Volume drives range, and large ranges happen at the start and end of the day. This is when short-term traders make money. We need volatility and large ranges to profit.

 There are three key cycles in market behavior: 
(1) small range/large range, (2) moving closes within ranges, and (3) closes opposite openings. 
All three cycles work equally well in any timeframe and market.
"Do yourself a big favor: Mark off all the large-range days [in the chart above], and then study the size of the ranges just
prior to explosive up-and-down days. See what I see? We are given ample warning of virtually every large-range day 
by the shrinkage of ranges a few days earlier."

The key takeaway for short-term traders is that not every day offers a high-probability trade. You need to identify days with potential for explosive moves and not expect large profits daily. It’s about finding that opportunity.

As for market tops, they usually occur when prices close near their highs, and bottoms happen when prices close near their lows. Focus on these closing patterns to determine when to buy and sell.

Trend is a function of time. The more time in a trade, the more opportunity for trend.

The most important insight in trading is that trends are the basis of all profits. Without a trend, there are no profits. But what causes trends? Trends are fundamentally a function of time—the more time you hold a trade, the more opportunity for a trend to develop. The challenge with day trading is that trends occur only about 15% of the time. Most of the time, prices are consolidating, making it difficult to catch a big trend move. Limiting yourself to a few hours of trading only targets that small window when trends are likely to occur.

 My Day Trade Secret: HTTC - Hold To The Close.

The day trader dilemma is that they have limited time to catch trends. Holding positions overnight allows you to capture longer trends and larger profits. A small bet with the potential for a big move is the key advantage of holding positions over time. 
 
 » How you know a large trend move is coming. «
 
Many day traders are afraid to hold positions overnight. However, if you do the math, you'll see that most market moves happen between the close of one day and the open of the next. Moves within the day are often smaller and less reliable. For short-term traders, the key to success is recognizing large range days and holding positions to the close. This is how you catch a big move during the day.
 
 
 » Hold To The Close. « 
S&P 500 E-mini Futures (daily bars).
 Narrow Range 4 & 7 Days and Inside Bar Narrow Range 4 & 7 Days.

 
NVIDIA (daily bars).
 Narrow Range 4 & 7 Days and Inside Bar Narrow Range 4 & 7 Days.

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Sunday, September 8, 2024

Toby Crabel’s Bull Hook Trading Strategy Tested | Ali Casey

As an algo trader, I value patterns for their ease of programming and testing, which allows for the development of robust trading strategies. Today, we'll explore bull and bear hooks, patterns that can vary in details but generally serve to catch traders on the wrong side. Toby Crabel, Joe Ross, and Thomas Bulkowski, among others, have variations of these patterns.

Toby Crabel's original definition of the Bull Hook pattern:
» A Bull Hook occurs on Day 2. A Bull Hook is defined as a day with a higher open than the 
previous day's high followed by a lower close with a narrowing daily range. The next day (Day 1), 
a trade is taken on the initial move off the open, preferably to the upside. «
 
Toby Crabel's original definition of the Bear Hook pattern:
  » Bear Hook is a day in which the open is below the previous day's low and the close 
is above the previous day's close with a narrow range relative to the previous day. As implied by 
the name there is a tendency for the price action following a Bear Hook to move to the downside. «

The Bull Hook pattern has two main forms:

Bull Hook 1: In a downtrend, the pattern is identified when today's bar is an up bar with a smaller range than the previous day and is an inside day (high lower, low higher than the previous bar). We buy with a stop order above the high of this bar.
Bull Hook 2: Here, today's bar is a down bar with a smaller range than the previous day, opening above the previous high and closing below the previous close. This pattern involves just two bars.


For testing, I used TradeStation with S&P 500 e-mini futures data. The backtest for Bull Hook 1 was disappointing, showing a loss with only 15 trades, which seemed unusual given its pullback nature. A deeper analysis suggested that the specific conditions, particularly the inside day and green bar requirements, were limiting trades. By removing some conditions, like the inside day and green bar, and focusing on a simpler pullback strategy, the results improved significantly with about 200 trades and positive performance metrics. For Bull Hook 2, the test also yielded fewer trades than expected, which might be attributed to its breakout nature, not performing well on the S&P 500. Simplifying the conditions here also improved the results somewhat, though it remained less effective. The Bear Hook pattern, when flipped for long trades, performed better but still had a low trade count. Removing some conditions and simplifying it increased the trade count and improved performance. While both Bull Hook patterns had potential, their effectiveness was highly dependent on specific conditions and the number of trades generated. Simplifying the patterns often led to better results.

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Friday, August 23, 2024

Recent Toby Crabel Price Pattern Setups in the E-mini S&P 500 Futures


 
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Wednesday, June 26, 2024

2-Bar Narrow Range Setup | Toby Crabel

2-Bar Narrow Range (2BNR)  represents a condensation of the market concept called congestion or contraction. Contraction is subsumed within the market Principle of Contraction/Expansion which states that the market, having a specific nature, is constantly changing from a period of movement to a period of rest and back to a period of movement. This interchange between the phases of motion and rest are constantly taking place with one phase directly responsible for the other's existence. 2-Bar NR represents this market principle and provides a means of quantifying contraction in any market environment. This is possible because of the open-ended nature of the concept 2-Bar NR. 
 
 2-Bar Narrow Range (2BNR) in the S&P 500 on June 26, 2024.
If the 2-bar range is the narrowest range from high to low of any two day period relative to
any two day period within the previous twenty days, we are sitting on a 2BNR trading setup for June 27.

Because it is not dependent on a constant measurement it represents contraction in a volatile or narrow market period. In other words, contraction is a relative condition that can occur even in a volatile market. Once a market concept is formulated it is tradable. An ORB (Opening Range Breakout) trade is taken the day after the 2-Bar NR formed. An ORB trade is entered at a predetermined amount above or below the opening range (stretch), that is the range of prices that occur in the first 30 seconds to 5, 15 or 30 minutes of trading. 
 
The assumptions are that with a contraction of this type trending action would follow the direction of the breakout, and that because this pattern exhibits a more defined contraction that trending would take place over the next several days also. It is advantageous if the 2-Bar NR is holding at an important angle of support/resistance, including trendlines, when it is formed. Once the market has moved away from the open in one direction after a 2-Bar NR, it should not return to the opening price. If it were to do so, that would disqualify the day as a trend day. Trending action is ideal and is expected after the pattern.
 
Reference:
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Friday, June 14, 2024

The Principle of Contraction/Expansion | Toby Crabel

Price always moves from Consolidation to Expansion, never from Consolidation to Reversal or from Consolidation to Retracement. 
 

After an Expansion, two possible scenarios can occur: either a Retracement or a Reversal, followed by another Expansion or Consolidation. That’s it—it happens over and over again. 

» 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. «
 
Toby Crabel, 1990
 
In his study 'Day Trading with Short Term Price Patterns and Opening Range Breakout' Toby Crabel defined the following range contraction and expansion patterns:

NR4 - The narrowest daily range relative to the previous three day’s daily ranges compared individually.
NR7 - A day with a daily range that is narrower than the previous six day’s daily ranges compared individually.
WS4 - (Widespread 4) A day with a daily range that is larger than any of the previous three day’s daily ranges.
WS7 - (Widespread 7) A day with a daily range that is larger than any of the previous six day’s daily ranges
             compared individually.

His key findings were: A cumulative total of Gross Profits for the contraction patterns vs expansion patterns on trades in the direction of the move off the open showed $710,000 for contractions on 7,313 trades and $102,000 for expansions on 7,524 trades. Profits were seven times larger for ORB (Opening Range Breakout) trades after contractions than expansions.

» Clearly something is going on here. The suggestion from these results is that one should be looking to go with a forceful move off the open after a contraction and not willing to do so after an expansion. In fact, fading price action off the open, with trend, after an expansion is a consideration. Other patterns can help with the decision on whether to fade a move off the open along with previously mentioned market context. If nothing else, one should be aware of the dangers of ORB trades the day after a big directional day. Caution is necessary after expansions. This is when the most attention is given to the market by the novice trades who invariably get caught in whipsaws and trendless markets. «  

 The more defined the congestion area, the better the chances for a Trend Day activity the following day.

Bitcoin - Inside Bar Narrow Range 4 (ID/NR4) in monthly, weekly, daily and 4 hour bar charts.

» An object at rest stays at rest and an object in motion stays in motion with the same speed 
and in the same direction unless acted upon by an unbalanced force. «
Isaac Newton's 'First Law of Motion', 1687
 
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Sunday, June 9, 2024

An Outside Look at Inside Days | Larry Williams

First, lets define what constitutes an inside day. An Inside Day is exactly the opposite of an Outside Day. That is, today’s high is less than yesterday’s high and today’s low is greater than yesterday’s low. Hence the terminology inside day, as all of today’s price range or trading activity took place inside of yesterday’s range. An inside day is usually thought to be an indication of congestion. A price could not exceed the previous day on the upside nor could it break below the previous day’s low on the downside.

 » Inside Days are one of the most reliable forecasting patterns to occur in the marketplace. «
 
Chartists and authors have not paid very much attention to the inside days over the years. They have made note of them, but this is the first time, to my knowledge, that anyone has made a serious study of the impact of inside days. And, wouldn’t you just know it … inside days are one of the most reliable forecasting patterns to occur in the marketplace!

  » In a study of nine major commodities covering 50,692 trading sessions, I noted 3,892 inside days,
suggesting we will see these days appear about 7.6 percent of the time. «
Larry Williams, 1998.

There does seem to be some validity to this. The following chart shows what happens when we have an inside day with a down-close while prices are lower than they were 10 days ago. In the Standard and Poor’s, 71% of the time you were higher the next day. This may not even be as significant as the fact that 71% of the time you were higher 20 days after this occurrence. In the Value Line, price is higher 50% of the time after the occurrence, and in Treasury Bonds it’s higher 75% of the time. The pattern in Silver was not nearly as bullish, which surprises me because I had used this trading technique in Silver with some success … which just goes to show you! In Silver, on 36% of the time you were higher 20 days following the occurrence of the pattern. Soybeans were higher 57% of the time, Bellies 50% of the time and the Swiss Franc, where so far we have not found a pattern that forces prices higher, you were up only 22% of the time.

'Inside Days in the S&P 500' - Toby Crabel, 1990.

For a moment though, let’s take a look at just the occurrence of an inside day. What happens when we simply have an inside day with a down-close? Does that, on its own merit, forecast any significant market activity? The results are on the next few pages [of 'The Future Millionaire's Confidential Trading Course']. What can you find?

Then there’s the other side of this coin. What happens if we have an inside day with an up-close? Does this forecast positive action? It appears that it does to some extent. Study the tables for yourself. I have gone to the computer to give you the results for almost all possible configurations of the inside days. While, quite frankly, much of the data suggests random-gibberish-behavior, others are relationships that you can find and successfully trade with. What you need to focus on here is not that the patterns will always work for you, but that patterns, like methods, systems and tools, will give you the much needed odds that lead to successful speculation.
 
I have not exhausted all possible ways of looking at inside days with down-closes, though I have looked at the majority of the relationships one can study. There are others. As an example, what happens if the prices are higher, or if prices are lower following an inside day five days later. Does that mean that the down trend will continue? One could also ask the questions about an outside day following an inside day. Is this a particularly bullish pattern? (It is.) As you can see, your opportunity for research here is unlimited. If you have a computer, some data, and a desire to study the markets, here is fertile ground for you to come up with your own great ideas.

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Monday, September 25, 2023

Narrow Range 4, Narrow Range 7, and Inside Days | Toby Crabel

Narrow range patterns were described by Tony Crabel in his book, "Day Trading with Short Term Price Patterns & Opening Range Breakout". Even though it was published in 1990, many of Crabel's concepts and set-ups are still effective, and in particular his NR4 (Narrow Range 4) and NR7 (Narrow Range 7) patterns became quite popular with short-term traders. 
 
The idea for set-ups is similar to the Bollinger Band Squeeze or Short-Squeezes and Long-Squeezes in general: a volatility contraction is followed by a volatility expansion; narrow range days mark price contractions that precede price expansions. The NR7 day and the NR4 day as such are 'neutral' when it comes to future price direction, and other tools need to be employed to determine directional bias. 
 
Because NR4/NR7 days are relatively commonplace and the range is small by definition, the chances of whipsaw are above average. A break above the NR7 high can fail and be followed by a break below the NR7 high. Just be aware of this probability and keep the bigger picture in mind. In other words, be wary of sell signals within a bullish pattern, such as a falling flag or at a support test.
 
Examples of Narrow Range 7 Inside Days (IDnr7) in the Nasdaq.

Traders will want to qualify NR7 signals because they are quite frequent. A typical instrument will produce dozens of NR7 days in a twelve month period and a daily scan of US stocks will often return hundreds of stocks with NR7 days. Traders can increase or decrease the number of narrow range periods to affect the results. 
 
A decrease from NR7 to NR4 would increase the number of instruments fitting the criteria, while an increase from NR7 to e.g. NR20 would decrease the number of signal days. Consider NR7 and NR4 days that are at the same time Inside Days (IDnr4, IDnr7) also as signal days (see chart above).

Strategy: This strategy starts with the day's range, which is simply the difference between the high and the low. Crabel used the absolute range, as opposed to the percentage range, which would be the absolute range divided by the close or the midpoint. Because we are only dealing with four and seven days, the difference between the absolute range and percentage range is negligible. 
 
Crabel focused on two different narrow range timeframes: four days and seven days. An NR4 pattern would be the narrowest range in four days, while an NR7 would be the narrowest range in seven days. It is a very short-term pattern designed to initiate a trade based on an "Opening Range Breakout", which is another term from Crabel's book. Look for an upside breakout when prices move above the high of the narrow range day and a downside breakdown when prices move below the low of the narrow range day.

Bull Signal:
  1. The daily bias is bullish.
  2. Identify a NR4, a NR7, an IDnr4 or an IDnr4 day.
  3. Buy on move above high of narrow range day high.
  4. Set trailing stop-loss.
Bear Signal:
  1. The daily bias is bearish.
  2. Identify a NR4, a NR7, an IDnr4 or an IDnr4 day.
  3. Sell on move below low of narrow range day low.
  4. Set trailing stop-loss.
Targets: Because this is a short-term setup, it is important that the trade starts working right away. Failure to continue in the direction of the signal is the first warning. After a buy signal, a move below the low of the narrow range day would be negative. Conversely, a move above the high of the narrow range day would negate a sell signal. Consider profit targets and stop-losses. 
 
Crabel took profits quite quickly, usually at the close of the first trading day or on the first profitable close. Again, this is very short-term-oriented and might not be suitable for all traders. Alternatively, profits can be taken near the next resistance levels or a percentage target can be used. Base stops on previous highs and lows, the Average True Range (ATR), etc. For example, the stop-loss on a long position could be set two ATR values below current prices and trailed higher.
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Sunday, September 25, 2022

Swing Trading - Rules and Philosophy | Linda Bradford Raschke

My style is based on the 'Taylor Trading Technique', a short-term method for trading daily price movements that relies entirely on odds and percentages. It is a method as opposed to a system. Very few people can blindly follow a system, though many find it easier to be discretionary in a systematic way. 
 
 
Because of the short-term nature of this technique, swing traders must adhere to some very basic rules, including: 
  • If the trade moves in your favor, carry it overnight--the odds favor follow-through. Expect to exit the next day around the objective point. An overnight gap presents an excellent opportunity to take profits. Concentrating on only one entry or one exit per day relieves the pressure. 
  • If your entry is correct, the market should move favorably almost immediately. It may come back to test and/or exceed your entry point a little, but that's OK. 
  • Do not carry a losing position overnight. Exit and play for better position the next day. 
  • A strong close indicates a strong opening the following day. 
  • If the market doesn't perform as expected, exit on the first reaction. 
  • If the market offers you a windfall of big profits, take them to the bank on the close. 
  • If you are long and the market closes flat, indicating a lower opening the following day, scratch or exit the trade. Play for better position the next day. 
  • It is always OK to scratch a trade! 
  • Use tight stops when swing trading (wider stops when trading trend). 
  • The goal always is to minimize risk and create "Freebies." 
  • When in doubt--get out! You have lost your road map and your game plan! 
  • Place your orders at the market. 
  • When the trade isn't working, exit on the first reaction. ANTICIPATE! 
 
Traders Laboratory (2007) - Taylor Trading Technique

How does one anticipate entry? The following may be indicators of a buy day or a sell day:

The Count
Start searching for a buying day 2 days after a swing high or, conversely, a shorting day 2 days after a swing low. Ideally, the market will move in complete 5-day cycles. (In a strong trend, the market will move 4 days in the primary direction and only 1 in reaction. Thus, one must seek entry 1 day earlier.)
 
"Check Mark" on the Test
The potential entry is sought opposite, or contrary to, the previous day's close. If looking to buy (sell), one first wants the market to "test" the previous day's low (high), preferably early in the day, and then form a trading pattern that looks like a "check mark" (see examples). This pattern sets up and establishes a "double stop point" or strong support. If entering a market with only a "single stop point" or support formed by today's low only, exit on the same day--the trade is clearly against the trend.

Close vs. Open
The close should indicate the following day's opening. When a market opens opposite what is expected or indicated by the trend, one may first look to "fade" it--but must take profits quickly. Then look to reverse!

Support (Resistance)
Is today's support (resistance) higher or lower than yesterday's?

Swing Measurements
Where is the market relative to the last swing high or low? Look for swings (up or down) of equal length, and for retracements of equal percentage.

No matter in what time frame, always look for supply at tops and support at bottoms. Penetrations should be accompanied by volume and activity. Expect trends, either up or down, to last for either 2 or 4 weeks. The following conditions are fairly reliable indicators for the start of one of these trends (I personally skip the first buy or sell swing when one occurs because the move ensuing could be quite strong): 
  • Narrowest range in the last 7 days 
  • 3 consecutive days with small range
  • The point of a wedge
  • A breakaway gap 
  • A rising ADX (14-period) above 32
Practice
Because a certain amount of confidence in any technique is required to trade it consistently, paper trading can cultivate the faith necessary to recognize and trade pattern repetition. Although the temptation to try too many different styles and patterns always exists, one must strive ultimately to trade in just one consistent manner or at least to integrate techniques into your own unique philosophy.
 
System Characteristics
Certain points about trading short-term swings deserve note. Understanding the nature of short-term systems can help you recognize the psychological aspect of trading. When consistently following a short-term system, you should expect a very high win/loss ratio. Though the objectives with this style of swing trading appear conservative, you will almost always incur "positive slippage". In all systems, winners are skewed. Even though making steady profits, 3-4 really big trades may actually make the month. It is vitally important to always "lock in" your trades. Don't give back profits when short-term trading. You may be astonished at just how big some winners may be from catching the swings "just right!"
 
[...] Finally, I want to leave you with what I believe are two Golden Rules, applicable to all traders but, of essential importance to short-term swing traders: 
  • NEVER, ever, average a loss! Sell out if you think you are wrong. Buy back when you believe you are right.
  • NEVER, NEVER, NEVER listen to anyone else's opinion! Only YOU know when your trade isn't working.
 
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