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Monday, January 9, 2023

External & Internal Range Liquidity | Auction Process & Institutional Order Flow

External Range Liquidity is the liquidity that will be resting on previous highs and lows (these highs and lows are also used to define the range), this could be in the form of stops or pending orders. While Internal Range Liquidity is the liquidity inside the defined range (External Range Liquidity). This could be in form of any institutional reference that we can use as entry such as order blocks, fair value gaps, volume imbalance, and more.

HERE

The first thing to do to be able to identify external range liquidity and internal range liquidity is to define the range you will be working within, using swing highs and lows to mark the beginning and end of the range. Choose the recent trading range relative to your specific time frame when defining your range.

External Range Liquidity can act as a draw on liquidity based on order flow, meaning if we have external range liquidity on the previous low and the institutional order flow is bearish, price will be attracted or pulled towards our external range.
 
 
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
 
Crude Oil ranges to break:
Inside Session, Inside Day, Inside Week, Inside Month, Inside Quarter, Inside Year.
 
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.
 
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Sunday, September 25, 2022

Swing Trading - Rules and Philosophy | Linda Bradford-Raschke

Linda Bradford-Raschke (2001) - 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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Monday, July 4, 2022

In Any Bar Chart Only 8 Possible Range Patterns | Larry Williams

Larry Williams presented a free session at the November 2014 Las Vegas Traders Expo in which he discussed 8 possible Range Patterns. He showed that from any bar to the next there are only 4 possible outcomes:

  1. Down Range: Last Bar's high is lower than prior Bar's high; and last Bar's low is lower than prior Bar's low.
  2. Up Range: Last Bar's high is higher than prior Bar's high; and last Bar's low is higher than prior Bar's low.
  3. Inside Range: Last Bar's high is lower than prior Bar's high; and last Bar's low is higher than prior Bar's low. On a Daily S&P500 Chart this occurs approximately 12% of the time.
  4. Outside Range: Last Bar's high is higher than the prior Bar's high; and Bar's low is lower than the prior Bar's low. On a Daily S&P500 Chart this occurs approximately 12% of the time.

Price action cannot occur in any other way. Within these 4 Range Patterns each last bar can either be an up bar or a down bar. So there are actually 8 possible Range Patterns:

1. Down Range, Down Day
2. Down Range, Up Day
3. Up Range, Down Day
4. Up Range, Up Day
5. Inside Range, Down Day
6. Inside Range, Up Day
7. Outside Range, Down Day
8. Outside Range, Up Day

Using these 8 patterns some powerful strategies can be created. Larry Williams presented back-tested statistics associated with trading these patterns using a simple entry and exit technique. He stressed that they were not the best entry or exit techniques but shown because they were easy to understand and program. This strategy is intended only to show where we have a bias or advantage in the marketplace.

  • Entry: At market close
  • Stop Loss: Based on $ Stop
  • Exit: First Profitable Opening

His message was that we could go home and verify using our own software. His results for testing this on the e-mini S&Ps from 2002 forward [to 2015] were as follows:


So, the Down Range, Down Close day [1.] offers the best potential short term 'long' setup based on net profit. This was the take-home message of the presentation.

Larry further dug into the Down Range, Down Close setup to uncover which day of the week offered the best trade: The stats support the 'Turnaround Tuesday' concept.


And further investigating by Trading Day of Month revealed that 1, 17, 19, 22 and 23 were the best days, showing 92% winners and $47,500 net profits with 107 trades.

It was also found that a Down Range Larger Range day was better than a Down Range smaller Range day. $205 Avg 80% Win, vs $33 Avg 85% win,

Also naked close was better than a covered close (naked close meaning that the close was outside of the previous day’s range). $155 Avg 83% Win vs $30 Avg 83% Win

And combining these two concepts:
Down Range, larger range, Covered close: $60 Avg, 83% Winners
Down Range, larger range, Naked close: $215 Avg, 85% Winners

References:

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