Capturing Trend Days | Linda Bradford Raschke

A trend day occurs when there is an expansion in the daily trading range and the open and close are near opposite extremes. The first half-hour of trading often comprises less than 10% of the day’s total range; there is usually very little intraday price retracement. Typically, price action picks up momentum going into the last hour — and the trend accelerates. 

A trend day can occur in either the same or the opposite direction to the prevailing trend on daily charts. The critical point is that the increased spread between the high and low of the daily range offers a trading opportunity from which large profits can be made in a short time. Traders must understand the characteristics of a trend day, even if interested only in intraday scalping. A trader anticipating a trend day should change strategies, from trading off support/resistance and looking at overbought/oversold indicators to using a breakout methodology and being flexible enough to buy strength or sell weakness. 

A trader caught off guard will often experience his largest losses on a trend day as he tries to sell strength or buy weakness prematurely. Because there are few intraday retracements, small losses can easily get out of hand. The worst catastrophes come from trying to average losing trades on trend days. Fortunately, it is possible to identify specific conditions that tend to precede a trend day. Because this can easily be done at night when the markets are closed, a trader can adjust his game plan for the next day and be prepared to place resting buy or sell stops at appropriate levels.

 Classic Trend Day: A large opening gap created a vacuum on the buy side.
The market opened at one extreme and closed on the other. Note how it made higher highs and higher lows all day.
Also, volatility increased in the latter part of the day–another characteristic of trend days.

 

The Principle of Range Contraction/Expansion: Several types of conditions lead to trend days, but most involve some type of contraction in volatility or daily range. In general, price expansion tends to follow periods of price contraction, the phenomenon being cyclical. The market alternates between periods of rest or consolidation and periods of movement, or markup/markdown. Volatility is actually more cyclical than is price.

 When a market consolidates, buyers and sellers reach an equilibrium price level — and the trading
range tends to narrow. When new information enters the marketplace, the market moves away from
this equilibrium point and tries to find a new price, or “value” area. Either longs or shorts will be
“trapped” on the wrong side and eventually forced to cover, aggravating the existing supply/demand imbalance.

 

Trend Day Down: In turn, the increase in price momentum attracts new market participants, and pretty soon a vicious cycle is created. Local pit traders, recognizing the one-way order flow, scramble to cover contracts. Instead of price reacting back as in normally trading markets, “positive feedback” is created — a condition in which and no one can predict how far the price will go. The market tends to gain momentum rather than to check back and forth.

We can tell when the market is approaching the end of contraction or congestion because the average daily range narrows. We know a potential breakout is at hand. However, it is difficult to predict the direction of the breakout because buyers and sellers appear to be in perfect balance. All we can do is prepare for increased volatility or range expansion!

Most breakout trading strategies let the market tip its hand as to which way it wants to go before entering. This technique sacrifices initial trade location in exchange for greater confidence that the market will continue to move in the direction of trade entry. The good news is that breakout strategies have a high win/loss ratio. The bad news is that whipsaws can be brutal!

 Tick Readings for Short-term day trading – Volatility conditions are important to quantify even if you are a short term
day trader. In a normal consolidation market, overbought/oversold type indicators, such as intraday tick readings,
can work well for S&P scalps.

 

• NR7 — the narrowest range of the last 7 days (Toby Crabel introduced this term in his classic book, Day Trading With Short-term Price Patterns and Opening-range Breakout);
• A cluster of 2 or 3 small daily ranges;
• The point of a wedge-type pattern (which usually exhibits contracting daily ranges);
• A Hook Day (wherein the open is above/below the previous day’s high/low — and then the price reverses direction; the range must also be narrower than the previous day’s range; leads traders to believe that a trend reversal has occurred, whereas the market has instead only formed a small consolidation or intraday continuation pattern);
• Low volatility readings, based on such statistical measures as standard deviations or historical volatility ratios or indexes;
• Large opening gaps (caused by a large imbalance between buyers and sellers);
• Runaway momentum (markets with no resistance above in an uptrend or no support below in a downtrend. This condition differs from the above setups in that volatility has already expanded. In a momentum market, however, the huge imbalance between buyers and sellers continues to expand the trading range.

 

Fading extreme tick readings can be dangerous – On a trend day, a counter-trend strategy of fading extreme tick readings could result in substantial losses. Average True Range highlights range contraction/expansion – The 3-Day Average True Range Indicator highlights how cyclical the phenomenon of range contraction/range expansion is. Volatility tends to be more cyclical than price.

Trading Strategies: A breakout strategy, or intraday trend-following method, can best capture a trend day. Wait for the market to tip its hand first as to which direction it is going to trend for the day. Rarely can this be determined by the opening price alone. Thus, most breakout strategies enter only after the market has already begun to move in one direction or the other, usually by a predetermined amount.

Add the following techniques to your repertoire. All of them will ensure you participate in a trend day. 

• Breakout of the Early-morning Trading Range. The morning range is defined by the high and low made in the first 45-120 minutes. Different time parameters can be used, but the most popular one is the first hour’s range. Wait for this initial range to be established and then place a (1) buy stop above the morning’s high and a (2) sell stop below the morning’s low. A protective stop-and-reverse should always be left in place at the opposite end of he range once entry has been established.
• Early Entry. Toby Crabel defined this as a large price movement in one direction within the first 15 minutes of the opening. The probability of continuation is extremely high. Once one or two extremely large 5-minute bars appear within the first 15 minutes, a trader must be nimble enough to enter on the next “pause” that usually follows. With many of these strategies, the initial risk can appear to be high. However, a trader must recognize that as the trading volatility increases so too does the potential for good reward. 
• Range Expansion off the Opening Price. A predetermined amount is added or subtracted from the opening price. Though Toby Crabel also described this concept in his book, it was really popularized by Larry Williams. The amount can be fixed, or it can be a percentage of the previous 1-3 days’ average true range. With resting buy and sell stops in place, the trader will be pulled into the market whichever way price starts to move. Entry, often made in the first hour, can be made earlier than the breakout from the first hour’s range. In general, the further price moves away from a given point, the greater are the odds it will continue in that same direction. The ideal is continuation in the direction of the initial trend once the trade is entered.

Volatility tend to increase as a trend matures – Trend days also frequently occur in runaway momentum markets. There is little range contraction evident in the latter part of this trend move. Rather, emotions run high as the imbalance between supply and demand reaches an extreme. 

• Price Breakout from the Previous Day’s Close. This strategy is similar to the above, with buy and sell stops based on a percentage of the previous 1-3 days’ range added to the previous close. The advantage to using the closing price is that resting orders can be calculated and placed in the market before the opening. The disadvantage is the potential for whipsaw if the market moves to fill a large opening price gap. (Another version of a volatility breakout off the open or closing price is the use of a standard-deviation or price-percentage function instead of a percentage of the average true range. All the above methods can be easily incorporated into a mechanical system.)
• Channel Breakout. One of the more popular types of trend-following strategies in the nineties, Donchian originally popularized the concept by employing a breakout of the 4-week high or low. Later, Richard Dennis modified this into the “Turtle System,” which used the 20-day high/low. Most traders don’t realize that simply entering on the breakout of the previous day’s high or low can also be considered a form of channel breakout. (Another popular parameter is the 2-day high or low.)

Exit Strategies: One of the easiest and more popular ways to exit a breakout trade is simply to exit “Market-On-Close. ” The ideal trend day closes near the opposite extreme of the day’s range from the opening. This strategy keeps the trader in the market throughout the day, yet requires no overnight risk. Most breakout strategies actually test out better for trades held overnight because the next opening will so often gap in a favorable direction. Thus, another simple strategy is to exit on the next morning’s opening.

Instead of a strategy based on time, such as the close or the next day’s open, one can also use a price objective. One popular method is to take profits near the previous day’s high or low. One can also determine a target based on the average true range. For the classic market technician, point-and-figure charts can provide a “count” which establishes a price target. This method is valid only if price breaks out of congestion or a well-defined chart formation.

Trade Management: In general when testing volatility breakout systems, the wider the initial money-management stop, the higher the win/loss ratio. With breakout strategies, the initial trade must be given room to breathe.

However, a discretionary day-trader will learn that the best trades move in his favor immediately. In this case, move the stop to breakeven once the trade shows enough profit. The stop can be trailed as the market continues to trend, but not too tightly. Because a great majority of the gains can occur in the last hour as the trend accelerates, try not to exit prematurely.

When trading multiple contracts, scale out of some to ensure a small profit in the event of a reversal. However, do not add to a position: The later the trade is established, the more difficult it is to find a suitable risk point.

A Few Words on Volatility Breakout Systems: Trading a mechanical breakout system can provide invaluable experience. The average net profit for the majority of these systems is quite low, so they may not guarantee a road to riches; but they serve as a terrific vehicle to gain a wealth of experience in a very structured format.

If you are going to trade a mechanical system, you must be willing to enter all trades! It is impossible to know which trades will be winners and which ones losers. Most traders who “pick-and-choose” have a knack for picking the losing trades and missing the really big winners. The hardest trades to take tend to work out the best! With most systems, a majority of the profits come from less than 5% of the trades.

Though most breakout methods have a high initial risk point, their high win/loss ratio makes them easier to trade psychologically. You might get your teeth kicked in on the losers, but, fortunately, big losses do not happen very often. Also, if trading a basket of markets, as one should with a volatility breakout system, diversification should help smooth out the larger losses.

To summarize the main benefits of trading a breakout system:

•     it teaches proper habits, in that there is always a well-defined stop;
•     you get lots of practice executing trades;
•     it teaches the importance of taking every trade;
•     it teaches respect for the trend.

Additional Considerations when using Breakout Strategies

•     overall average daily trading range (must be high enough to ensure wide “spread”);
•     volume and liquidity;
•     seasonal tendencies (e.g., grains are better markets in spring and summer);
•     relative strength;
•     commercial composition.

Quoted from:

Linda Bradford Raschke (1995) - Capturing Trend Days.

 

See also:

Toby Crabel (1990) - Day Trading With Short Term Price Patterns and Opening Range Breakout.

Definition of Price Patterns | Toby Crabel

A range that has stopped growing is more likely to be left behind by the next open than a range that has already expanded. That is the whole idea. Toby Crabel spent the 1980s turning it into definitions a trader could mark on a chart and test. The narrow day is the contraction. The break of the next opening range is the expansion. A wide day means the expansion has already happened, and taking the same breakout afterward is a way to lose the edge.

 

The innovation was not a new indicator. It was a control. Crabel took the identical opening-range trade after a contraction, after an expansion, and on any day at all. The any-day trade shows what a breakout is worth without a pattern. Everything else is judged against that benchmark. He also fixed the entry distance, so a win after a narrow day and a win after a wide day counted as the same kind of win. Without that control, the patterns are stories. With it, they become a method, published in his 1990 book, Day Trading With Short Term Price Patterns and Opening Range Breakout. In what follows, every pattern is defined in Crabel's own words. The trade is never taken on the bar that just qualified. That bar establishes the setup. The order is placed for the next session.

 

Toby Crabel 

William Toby Crabel was born in 1955. Before entering the markets, he played tennis: three years on the professional tour, a place in the men’s doubles at the 1980 French Open, and, before that, an All-American college career. The habit tennis left him was repetition under rules. Trading came alongside it. He was already active in the markets by the mid-1970s, while studying finance.

In 1980, he joined RB&H Financial Services in Chicago and traded customer accounts at his own discretion. The floor of the Chicago Mercantile Exchange provided the correction. What the locals did in the first minutes after the open looked repeatable. He stopped treating it as feel and started writing it down. The notes became a commodity letter, The Active Trader, distributed to floor traders, followed by a series of research reports under the name Market Analytics. In 1987, he formed Toby Crabel & Co., a sole proprietorship that became Crabel Capital Management. In 1990, Traders Press of Greenville published the reports as Day Trading With Short Term Price Patterns and Opening Range Breakout. The book is the pattern library and the tests.

In the early 1990s, he worked in research and trading for Victor Niederhoffer while maintaining a small customer book of his own. He left to run the strategies himself. In 1992, he launched Crabel Diversified Futures and spent the following years removing discretion from the ideas: the same research, expressed as rules, with software generating the trades. In 1998, the firm launched Crabel Multi-Product, built on those legacy strategies. For a time, the operation was based in a house in River Hills, Wisconsin, northwest of Milwaukee, with the European open monitored from a basement. The flagship fund closed to new investment in 2001. Accounts of its performance report no losing calendar year from 1991 through 2002.

 

"On the counter-trend side, perhaps the most well-known is Toby Crabel."
James Altucher, Financial Times, January 24, 2005.

 

By the middle of the decade, the results were public enough to be debated. On January 24, 2005, James Altucher, writing in the Financial Times, contrasted trend-followers with countertrend traders and identified Toby Crabel as perhaps the best-known figure on the countertrend side. The article credited him with more than $1.6 billion under management. It reported that 2004 had produced two losing months, with March down 0.79 percent and June down 0.39 percent, followed by a full-year gain of 3.36 percent. The average annual return was reported as 9.48 percent, and the worst drawdown as 4.23 percent. The fee structure was the institutional standard of 3 percent and 20 percent of profits. Altucher noted that the 1990 book was already changing hands on eBay for upwards of $1,000.

The July 2005 Absolute Return survey of US firms with more than $1 billion under management ranked Crabel Capital 101st out of 196. Reports for that year put the firm’s assets at $3.2 billion and its gain at 16.7 percent. The January and July figures do not represent the same measurement, and they are not smoothed here into a single number. Both were on the record before the decade turned. A 2010 profile of the firm put assets above $3 billion and its staff at no more than about eighty, including roughly thirty researchers and thirty traders, with capital divided between an offshore fund and a US partnership.

The method had already changed scale, but its subject had not. The book tests one trade—the opening-range breakout—against a handful of range patterns. By 2011, the firm had evolved into a collection of short-term models spanning many futures markets, with increasingly automated execution and a research staff dedicated to continued testing. The reason is already present in the book, even though the book contains only one system. A single pattern belongs to a particular market regime. It works while the open retains the characteristics observed in the test, and its effectiveness fades when the open changes. The durable innovation was not NR7. It was the procedure: define the behavior, trade it the same way every time, and maintain a control so that the pattern can be distinguished from the habitual practice of buying strength. 

 

Contraction and Expansion Price Range Patterns

A short-term price pattern, as Crabel explains in his introduction, is recent price action interpreted through previous closes, openings, range size, and the move off the open. The principle underlying the tests is contraction and expansion. A range that has stopped growing is more likely to be followed by one that breaks away from it. The narrow day represents contraction. The breakout of the next opening range represents expansion. A wide day means that the expansion has already occurred.

"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."

Crabel tested the same opening-range breakout after two types of contraction and two types of expansion, comparing all four against the identical trade taken on any day.

"An average of all percentages under the column labelled NR7 was 64%, NR4 64%, Control 57%, WS4 54% and WS7 52%. The more pronounced the expansion, the smaller the percentage chance of following through in the direction of an ORB. Profits were seven times larger for ORB trades after contractions than after expansions." 

 His average, not a fresh count. Contractions beat the control 30 times out of 32. Expansions were worse 29 times out
of 32. Gross profit was about $710,000 on 7,313 contraction trades and about $102,000 on 7,524 expansion trades.
No slippage. No commission.

Table A of the contraction study. NR7 and NR4 are the columns to trade. 

WS4 and WS7 are the columns that show the move already spent. 

 

Stretch

Stretch is the entry distance. It is not a pattern, nor is it a ten-day average of the daily range.

“The Stretch is determined by looking at the previous ten days and averaging the sum of the differences between the open for each day and the closest extreme to the open on each day.”

For each of those ten sessions, take the smaller of the high minus the open and the open minus the low. Average the ten values. A session with an open at 1,250, a high at 1,258, and a low at 1,240 contributes 8, not 10 and not the 18-point daily range. The smaller value is the distance to the closer extreme, not the daily range and not a pivot. Pivots play no part in the calculation and are not a condition of the trade.

 

Opening Range Breakout (ORB)

Two entry distances appear in the book, and they do not define the same trade. In the first chapter, the stop sits beyond the opening range. In the later tests, Crabel drops Stretch and uses a constant distance from the open so that every pattern can be compared with every other pattern.

"An Opening Range Breakout is a trade taken at a predetermined amount above or below the opening range. When the predetermined amount (the stretch) is computed, a buy stop is placed that amount above the high of the opening range and a sell stop is placed the same amount below the low of the opening range. The first stop that is traded is the position and the other stop is used as a protective stop."

The glossary defines the opening range as the first thirty seconds of trading. In an ORB, both stops are active. The first to be filled establishes the position; the other becomes the protective stop.

"In later testing you will notice that I use a constant value off the open rather than the stretch point. Experience has shown this to be a better method. As long as I used the same value throughout, I could generalize about market activity."

Using a fixed distance from the open and closing the position at that day's close allowed every pattern to be evaluated on the same basis. The practical entry method, however, remains Stretch beyond the thirty-second opening range. The tests specify no price target; the measured exit is the close.

 

Opening Range Breakout Preference (ORBP)

An Opening Range Breakout Preference is an ORB with the side already chosen. The choice comes from the market’s own bias, or from a clear supply or demand indication. It does not come from a second indicator laid on top of the pattern.

"There are days when a trade in only one direction is taken, this is called an Opening Range Breakout Preference (ORBP). Usually this is done in a market with a strong bias in one direction or just after a clear supply or demand indication. The procedure is similar to the ORB but the only order entered is the stop in the direction of the entry. The protective stop is entered only after the trade has been entered. One qualification to this is if the market trades to the stretch in the opposite direction first; the ORBP is nullified and the resting order is cancelled." 

After the Fill

"The ORB can be utilized as a general indicator of bias every day. Whichever side of the Stretch is traded first will indicate bias in that direction for the next two to three hours of the session." 

"Early Entry is defined as a large price movement in one direction within the first five minutes after the open of the daily session. This is ideal price action when using an ORB for entry. The open should act as one extreme."

In general, stops should be moved to breakeven within one hour of entry. Markets with a greater tendency to trend should be given less time. The S&P 500, Crabel notes, usually takes no more than five to ten minutes to establish a clear move away from the open.

Trading more than one contract allows some positions to be closed as the move continues, while the remaining contracts are trailed with the stop moved to breakeven. If the initial breakout is missed, a retracement of three-eighths to one-half of the range already established can provide another entry, with the stop placed beyond the five-eighths level. He permits two such retracements; the third, he warns, is treacherous. A fill that comes late in the session is a weaker entry. Position size should decrease as the day progresses.

 

How a Range Is Compared

Range is the high minus the low. Each earlier bar is compared individually with today's bar. Today’s range must be strictly narrower or strictly wider; a tie with any bar in the comparison window disqualifies the pattern. The patterns are nested: an NR7 is also an NR4 and an NR. Crabel never calls the one-day case NR2, nor does he define an NR5 or a WS5. When he writes that the ORB is effective after an inside day with a range smaller than those of the previous four or five days, he is describing the trade, not introducing an additional pattern. 

 

 Green rows are the contractions. A wide day is in the book, and it is the control that lost. WS4 is "a day with a daily

range that is  larger than any of the previous three day's daily ranges." WS7 is the same against the previous six.

"The ORB is effective after inside days that have a smaller daily range than the previous four or five days and for that matter after any day that has a daily range less than the previous six days (NR7) whether an inside day or not."

Inside Day (ID)

"Inside Day (ID) is defined as a narrow range day that has its daily range completely within the previous day's range. More specifically, an Inside Day's high is less than the previous day's high and the Inside Day's low is greater than the previous day's low."

 

 Inside Day Narrow Range 4 (IDnr4).

  

Both extremes must be strictly inside. A touch of the prior high or the prior low is not an inside day. A plain inside day names no side. Calling it trend continuation is the special case, not the definition.

"The hypothesis is that Inside Days precede trend day activity and consequently successful opening range breakouts."

The exception is a market that is already running. Then the inside day is a springboard in the direction of that run, and the trade is an ORBP with the run. Drop the stop against it. A gap in the direction of the run is continuation. A break the other way is the one to skip. He says direction is not that predictable on an inside day that is not inside a run.

 

 Opening-range breakout after an inside day, bonds, the S&P, beans, and cattle. The inside day is the setup.
The numbers are the next session. In bonds and the S&P; the pattern beats the same trade taken on any day. 

Outside Day (OD)

An outside day is the reverse bar: a high above the prior high and a low below the prior low. Crabel uses the term. He does not give it a glossary entry, and it is not one of the contraction patterns. It is an expansion that took both sides of the prior bar. Do not treat the next morning as a fresh narrow-day breakout.

Hooks

"A Hook day is any day that opens above or below the previous day's high or low then proceeds to reverse the previous day's close but does so with a narrowing daily range relative to the previous day."

"Bear Hook is defined as 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. There is a tendency for the price action following a Bear Hook to move to the downside."

The sale is the next session, not the hook itself. He does not buy a bear hook. Thirteen of sixteen tests were profitable as sales. The exception he allows is a gap above the hook that holds through mid-session.

 

 Bear Hook, then the ORB. Thirteen of the sixteen tests pay as sales. The S&P’s 

buy-side profits are the bull-market exception, and he says so. It is not a buy.

"Bull Hook is defined as a day in which the open is above the previous day’s high and the close is below the previous day’s close with a narrowing range."

The name says bullish. The tests only lean that way, and they lean less than the bear hook leans down. Eight of sixteen trades were profitable as buys. Gross profits were $30,051 on the buys and $7,854 on the sales. It is a better trade if the next open is below the hook’s close. A fast early move against the hook is a reason to stand aside. Where his diagrams mark Day 2 and Day 1, Day 2 is the hook and Day 1 is the session that is traded.

 

 Bull Hook Day. The buys made about four times the sales.

That is the whole case, and it is the weaker of the two hooks.

The Longer Contractions

The longer narrow ranges close the library. The object is one span, the highest high minus the lowest low, compared with earlier spans of the same length. It is not a streak of narrow days. A two-bar narrow range can contain one wide day, provided the combined span is the narrowest.

"2 Bar NR is the narrowest range from high to low of any two day period relative to any two day period within the previous twenty days."
"3 Bar NR is the narrowest range from high to low of any three day period relative to any three day period within the previous twenty days."
"4 Bar NR is the narrowest range from high to low of any four day period relative to any four day period within the previous thirty days."
"8 Bar NR is the narrowest range from high to low of any eight day period relative to any eight day period within the previous forty days."

 

NR7 ORB.  

 

They are used like an NR7. They do not pick a side. The next session is a two-sided ORB, or an ORBP with the run if the market is already running.

 

Glossary definitions. The window is not the same for every pattern. 

Four bars look back thirty sessions. Eight bars look back forty.  

 

What to Do with the Row

A narrow day, an inside day, an IDnr4, or a 2BNR through an 8BNR does not pick a side. Take a two-sided ORB the next session. Stretch is fixed before the open. The buy stop is one Stretch above the high of the first thirty seconds. The sell stop is one Stretch below that low. The first stop filled is the trade. The other is the protective stop.

 

If the market is already running, an inside day is not two-sided. Drop the stop against the run and take the ORBP with it. A bear hook is a sale. A bull hook prefers the buy and is the weaker signal. A wide day (WS), a WS4, a WS7, or an outside day is not a new contraction. The expansion has already left. Stand aside or wait for the next narrow day.

Whichever side of Stretch trades first is the bias for the next two or three hours, even with no position. Do not fade that first move unless it is against the intermediate trend and the pattern agrees with the trend. Move the stop to flat within an hour, sooner in a market that trends easily. There is no fixed target in the tests. The measured exit is the close of the entry day. Hold longer only if that session is already substantially profitable.

One practical limit, learned from running the patterns rather than from the book. The bar has to be one session. A holiday, a feed that revises the high, or a futures roll that splices two deliveries into one lookback will print a pattern the market did not make. Confirm the high, the low, and the close against the exchange before trading the row. 

 

What these Definitions Are Not

The stop in the tests is a fixed distance off the open. The stop in the trading rule is one Stretch beyond the high and the low of the first thirty seconds. Using the test as the order throws away the opening range he spent the first chapter defining.

NR5 and WS5 are not in the book. Neither is a pattern called NR2. NR is simply a range smaller than yesterday's. A narrow day is not, by itself, a trend-continuation signal. Continuation is what he does when the direction is already known: an inside day (ID) inside a run, or a hook. The narrowness only says the range is ready to leave, and the leaving is a two-sided breakout.

A WS4 or a WS7 is not a second setup. In his own table the opening-range trade after them was worse than the same trade on any day. The wide bar is the result of the contraction, not the start of another one.

Nothing in the Stretch calculation refers to a pivot, a moving average of the close, or a second study. The ten numbers are distances from the open to the nearer extreme. That is the entire formula. 

 

Summary of Patterns

NR (Narrow Range): A price bar whose range is narrower than the previous bar. Its opposite is WS. Next to NR4, NR5, and NR7 it is technically NR2.

NR4 (Narrow Range 4): A price bar whose range is narrower than each of the previous three bars, marking the narrowest range in four bars. Its opposite is WS4. NR, NR5, and NR7 are also closely watched patterns.

NR5 (Narrow Range 5): A price bar whose range is narrower than each of the previous four bars, marking the narrowest range in five bars. Its opposite is WS5. NR, NR4, and NR7 are also closely watched patterns.

NR7 (Narrow Range 7): A price bar whose range is narrower than each of the previous six bars, marking the narrowest range in seven bars. Its opposite is WS7. NR, NR4, and NR5 are also closely watched patterns.

WS (Wide Spread): A price bar whose range is wider than the previous bar. Its opposite is NR. Next to WS4, WS5, and WS7 it is technically WS2.

WS4 (Wide Spread 4): A price bar whose range is wider than each of the previous three bars, marking the widest range in four bars. Its opposite is NR4. WS, WS5, and WS7 are also closely watched patterns.

WS5 (Wide Spread 5): A price bar whose range is wider than each of the previous four bars, marking the widest range in five bars. Its opposite is NR5. WS, WS4, and WS7 are also closely watched patterns.

WS7 (Wide Spread 7): A price bar whose range is wider than each of the previous six bars, marking the widest range in seven bars. Its opposite is NR7. WS, WS4, and WS5 are also closely watched patterns.

ID (Inside Day): A bar whose high is below the previous high and whose low is above the previous low, so the session sits inside the prior bar.

OD (Outside Day): A bar whose high is above the previous high and whose low is below the previous low, so the session takes out both sides of the prior bar.

IDnr4 (Inside Day Narrow Range 4): An inside day that is also an NR4. The bar sits inside the prior bar, and its range is narrower than each of the previous three bars.

2BNR (2 Bar Narrow Range): The two-bar range, higher high minus lower low, is the narrowest two-bar range of the last 20 sessions.

3BNR (3 Bar Narrow Range): The three-bar range, higher high minus lower low, is the narrowest three-bar range of the last 20 sessions.

4BNR (4 Bar Narrow Range): The four-bar range, higher high minus lower low, is the narrowest four-bar range of the last 30 sessions.

8BNR (8 Bar Narrow Range): The eight-bar range, higher high minus lower low, is the narrowest eight-bar range of the last 40 sessions.

Bear Hook: An NR with the open below the previous bar's low and the close above the previous bar's close.

Bull Hook: An NR with the open above the previous bar's high and the close below the previous bar's close.

Stretch: The 10-session average of the smaller open-to-extreme distance, open to high or open to low. It sets the distance for an ORB or ORBP entry and stop.

Reference:

Toby Crabel (1990) - Day Trading With Short Term Price Patterns and Opening Range Breakout.

Possible Pattern of current STD Green Week

The K-Wave: Heretical Thoughts & Practical Understandings | Tony Plummer

 Credits: MARKET TECHNICIAN - Issue 59 – July 2007.

STD Green Week (April 23-27)

 

Tony Caldaro (link): The decline from last weeks Intermediate wave B at SPX 1393 clearly looks like Intermediate wave C. Thus far, we have had a three wave decline to SPX 1370, which we labeled Minor A. Then a rally to SPX 1387, which we labeled Minor B. Minor C is underway now. As soon as the OEW 1363 pivot range, (1356-1370), fails, the steep part of this declining wave should be underway. We continue to look for a correction low between SPX 1300 and 1340, and ideally between 1313 and 1327. Short term support is at the 1363 pivot and SPX 1340, with resistance at the 1372 and 1386 pivots. Short term momentum is nearly back to neutral after getting extremely oversold.

Francis Bussiere (link): Moon in Capricorn Low near Monday the 23rd?
Moon 20 degree High near Wednesday the 25th?  
Moon in Taurus Low near Monday the 30th?
Moon in Leo High near Monday the 6th?

The dual Moon cycles work best from May to October when they are in phase, and historically this is the weakest period in the market.

The Static and the Dynamic Views of Economics | Nikolai Kondratieff

The Sixth Kondratiev Long Wave Cycle

 

The Long Waves in Economic Life | Nikolai Kondratieff

XII. THE NATURE OF LONG WAVES  

Is it possible to maintain that the existence of long cycles in the dynamics of the capitalist economy is proved on the basis of the preceding statements? The relevant data which we were able to quote cover about 140 years. This period comprises two and one-half cycles only. Although the period embraced by the data is sufficient to decide the question of the existence of long waves, it is not enough to enable us to assert beyond doubt the cyclical character of those waves. Nevertheless we believe that the available data are sufficient to declare this cyclical character to be very probable.

We are led to this conclusion not only by the consideration of the factual material, but also because the objections to the assumption of long cyclical waves are very weak.

It has been objected that long waves lack the regularity which business cycles display. But this is wrong. If one defines “regularity” as repetition in regular time-intervals, then long waves possess this characteristic as much as the intermediate ones. A strict periodicity in social and economic phenomena does not exist at all — neither in the long nor in the intermediate waves. The length of the latter fluctuates at least between 7 and 11 years, i.e., 57 per cent. The length of the long cycles fluctuates between 48 and 60 years, i.e., 25 per cent only.

If regularity is understood to be the similarity and simultaneity of the fluctuations of different series, then it is present to the same degree in the long as in the intermediate waves.

If, finally, regularity is understood to consist in the fact that the intermediate waves are an international phenomenon, then the long waves do not differ from the latter in this respect either.

Consequently, there is no less regularity in the long waves than in the intermediate ones, and if we want to designate the latter as cyclical, we are bound not to deny this characterization to the former.

It has been pointed out [by other critics] that the long waves — as distinct from the intermediate ones which come from causes within the capitalistic system — are conditioned by casual, extra-economic circumstances and events, such as (1) changes in technique, (2) wars and revolutions, (3) the assimilation of new countries into the world economy, and (4) fluctuations in gold production.

These considerations are important. But they, too, are not valid. Their weakness lies in the fact that they reverse the causal connections and take the consequence to be the cause, or see an accident where we have really to deal with a law governing the events. In the preceding paragraphs, we have deliberately, though briefly, considered the establishment of some empirical rules for the movement of long waves. These regularities help us now to evaluate correctly the objections just mentioned.

1. Changes in technique have without doubt a very potent influence on the course of capitalistic development. But nobody has proved them to be the cause of long waves. On the contrary, the great importance of technical inventions and of the investment of new capital is most clearly evident during the upswing of the long cycle and during the first years after its highest point. During the downswing, on the other hand, the number of important inventions and new installations put into operation decreases noticeably. This is perfectly natural, for during the downswing the conditions for new investments are relatively unfavourable. Consequently, changes in technique cannot be considered as primary causes of the long waves; they are themselves only a function of their course.

2. Wars and revolutions also influence the course of economic development very strongly. But wars and revolutions do not come out of a clear sky, and they are not caused by arbitrary acts of individual personalities. They originate from real, especially economic, circumstances. The assumption that wars and revolutions acting from the outside cause long waves evokes the question as to why they themselves follow each other with regularity and solely during the upswing of long waves. Much more probable is the assumption that wars originate in the acceleration of the pace and the increased tension of economic life, in the heightened economic struggle for markets and raw materials, and that social shocks happen most easily under the pressure of new economic forces.

Wars and revolutions, therefore, can also be fitted into the rhythm of the long waves and do not prove to be the forces from which these movements originate, but rather to be one of their symptoms. But once they have occurred, they naturally exercise a potent influence on the pace and direction of economic dynamics.

3. As regards the opening-up of new countries for the world economy, it seems to be quite obvious that this cannot be considered an outside factor which will satisfactorily explain the origin of long waves. The United States have been known for a relatively very long time; for some reason or other they begin to be entangled in the world economy on a major scale only from the middle of the nineteenth century. Likewise, the Argentine and Canada, Australia and New Zealand, were discovered long before the end of the nineteenth century, although they begin to be entwined in the world economy to a significant extent only with the coming of the 1890’s. It is perfectly clear historically that, in the capitalistic economic system, new regions are opened for commerce during those periods in which the desire of old countries for new markets and new sources of raw materials becomes more urgent than theretofore. It is equally apparent that the limits of this expansion of the world economy are determined by the degree of this urgency. If this be true, then the opening of new countries does not provoke the upswing of a long wave. On the contrary, a new upswing makes the exploitation of new countries, new markets, and new sources of raw materials necessary and possible, in that it accelerates the pace of capitalistic economic development.

4. There remains the question whether the discovery of new gold mines, the increase in gold production, and a consequent increase in the gold stock can be regarded as a casual, outside factor causing the long waves.

An increase in gold production leads ultimately to a rise in prices and to a quickening in the tempo of economic life. But this does not mean that the changes in gold production are of a casual, outside character and that the waves in prices and in economic life are likewise caused by chance. We consider this to be not only unproved but positively wrong. This contention originates from the belief, first, that the discovery of gold mines and the perfection of the technique of gold production are accidental and, secondly, that every discovery of new gold mines and of technical inventions in the sphere of gold production brings about an increase in the latter. However great may be the creative element in these technical inventions and the significance of chance in these discoveries, yet they are not entirely accidental. Still less accidental — and this is the main point — are the fluctuations in gold production itself. These fluctuations are by no means simply a function of the activity of inventors and of the discoveries of new gold mines. On the contrary, the intensity of inventors’ and explorers’ activity and the application of technical improvement in the sphere of gold production, as well as the resulting increase of the latter, depend upon other, more general causes. The dependence of gold production upon technical inventions and discoveries of new gold mines is only secondary and derived.

Although gold is a generally recognized embodiment of value and, therefore, is generally desired, it is only a commodity. And like every commodity it has a cost of production. But if this be true, then gold production — even in newly discovered mines — can increase significantly only if it becomes more profitable, i.e., if the relation of the value of the gold itself to its cost of production (and this is ultimately the prices of other commodities) becomes more favorable. If this relation is unfavorable, even gold mines the richness of which is by no means yet exhausted may be shut down; if it is favorable, on the other hand, even relatively poor mines will be exploited.

When is the relation of the value of gold to that of other commodities most favorable for gold production? We know that commodity prices reach their lowest level toward the end of a long wave. This means that at this time gold has its highest purchasing power, and gold production becomes most favorable. This can be illustrated by the figures in Table 2.

At the same time, we believe ourselves justified in saying that the long waves, if existent at all, are a very important and essential factor in economic development, a factor the effects of which can be found in all the principal fields of social and economic life.

Even granting the existence of long waves, one is, of course, not justified in believing that economic dynamics consists only in fluctuations around a certain level. The course of economic activity represents beyond doubt a process of development, but this development obviously proceeds not only through intermediate waves but also through long ones. The problem of economic development in toto cannot be discussed here.

In asserting the existence of long waves and in denying that they arise out of random causes, we are also of the opinion that the long waves arise out of causes which are inherent in the essence of the capitalistic economy. This naturally leads to the question as to the nature of these causes. We are fully aware of the difficulty and great importance of this question; but in the preceding sketch we had no intention of laying the foundations for an appropriate theory of long waves.¹Gold production, as can be seen from these figures, becomes more profitable as we approach a low point in the price level and a high point in the purchasing power of gold (1895 and the following years).

It is clear, furthermore, that the stimulus to increased gold production necessarily becomes stronger the further a long wave declines. We, therefore, can suppose theoretically that gold production must in general increase most markedly when the wave falls most sharply, and vice versa.

In reality, however, the connection is not as simple as this but becomes more complicated, mainly just because of the effect of the changes in the technique of gold production and the discovery of new mines. It seems to us, indeed, that even improvements in technique and new gold discoveries obey the same fundamental law as does gold production itself, with more or less regularity in timing. Improvements in the technique of gold production and the discovery of new gold mines actually do bring about a lowering in the cost of production of gold; they influence the relation of these costs to the value of gold, and consequently the extent of gold production. But then it is obvious that exactly at the time when the relation of the value of gold to its cost becomes more unfavorable than theretofore, the need for technical improvements in gold mining and for the discovery of new mines necessarily becomes more urgent and this stimulates research in this field. There is, of course, a time-lag, until this urgent necessity, though already recognized, leads to positive success. In reality, therefore, gold discoveries and technical improvements in gold mining will reach their peak only when the long wave has already passed its peak, i.e., perhaps in the middle of the downswing. The available facts confirm this supposition.¹ In the period after the 1870’s, the following gold discoveries were made: 1881 in Alaska, 1884 in the Transvaal, 1887 in West Australia, 1890 in Colorado, 1894 in Mexico, 1896 in the Klondike. The inventions in the field of gold-mining technique, and especially the most important ones of this period (the inventions for the treatment of ore), were also made during the 1880’s, as is well known.

Gold discoveries and technical improvements, if they occur, will naturally influence gold production. They can have the effect that the increase in gold production takes place somewhat earlier than at the end of the downswing of the long wave. They also can assist the expansion of gold production, once that limit is reached. This is precisely what happens in reality. Especially after the decline in the 1870’s, a persistent, though admittedly slender, increase in gold production begins about the year 1883,² whereas, in spite of the disturbing influences of discoveries and inventions, the upswing really begins only after gold has reached its greatest purchasing power; and the increased production is due not only to the newly discovered gold fields but in a considerable degree also to the old ones. This is illustrated by the figures in Table 3.

From the foregoing one may conclude, it seems to us, that gold production, even though its increase can be a condition for an advance in commodity prices and for a general upswing in economic activity, is yet subordinate to the rhythm of the long waves and consequently cannot be regarded as a causal and random factor that brings about these movements from the outside.

XIII. CONCLUSIONS  

The objections to the regular cyclical character of the long waves, therefore, seem to us to be unconvincing. In view of this circumstance and considering also the positive reasons developed above, we think that, on the basis of the available data, the existence of long waves of cyclical character is very probable.

At the same time, we believe ourselves justified in saying that the long waves, if existent at all, are a very important and essential factor in economic development, a factor the effects of which can be found in all the principal fields of social and economic life.

Even granting the existence of long waves, one is, of course, not justified in believing that economic dynamics consists only in fluctuations around a certain level. The course of economic activity represents beyond doubt a process of development, but this development obviously proceeds not only through intermediate waves but also through long ones. The problem of economic development in toto cannot be discussed here.

In asserting the existence of long waves and in denying that they arise out of random causes, we are also of the opinion that the long waves arise out of causes which are inherent in the essence of the capitalistic economy. This naturally leads to the question as to the nature of these causes. We are fully aware of the difficulty and great importance of this question; but in the preceding sketch we had no intention of laying the foundations for an appropriate theory of long waves.

 

Long Wave Theory - Kondratieff Wave Already Bottomed? | Martin Armstrong