Showing posts sorted by relevance for query larry williams. Sort by date Show all posts
Showing posts sorted by relevance for query larry williams. Sort by date Show all posts

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


Sunday, July 10, 2022

3 Bar Patterns | The Smallest Fractals of Market Structure

"Any time there is a daily low with higher lows on both sides of it, that low will be a short-term low. We know this because a study of market action will show that prices descended in the low day, then failed to make a new low, and thus turned up, marking that ultimate low as a short-term point. A short-term market high is just the opposite. Here we will see a high with lower highs on both sides of it. What this says is that prices rallied up to the zenith of that middle day, then began to move back down, and in the process formed a short-term high. For our purposes in identifying short-term swing points, we will simply ignore inside days and the possible short-term points they produce." This is how Larry Williams defined market structure. His concept is universal and applies to all bars of all time frames.

  • A Short-Term High (STH) is a bar with a high greater than or equal to the high of the bar to the left and greater than the bar high to the right. Neighboring bars should not be inside. If they are inside bars, the bars that follow them should be analyzed.
  • A Medium-Term High (MTH) has Short-Term Highs to the left and and to the right that are below the high of this bar.
  • A Long-Term High (LTH) has Medium-Term Highs to the left and and to the right that are below the high of this bar.

And for the lows it’s all vice versa: 

  • Short-Term Low (STL) = bar with higher lows on both sides
  • Intermediate-Term Low (ITL) = higher STL on both sides
  • Long-Term Low (LTL) = higher ITL on both sides

In other words: 3 bar patterns are the smallest fractals and building blocks of market structure. Since price is always either in consolidation, in an uptrend or in a downtrend 3 successive price bars must form either a directional pattern (higher highs, higher lows or vice versa), a continuation pattern (inside bar) or a reversal pattern (outside bar, pin bar, head & shoulder, M&W patterns) (see also HERE):


Sunday, November 12, 2017

90% Bullish Larry Williams Trading Setup for S&P500 Futures

One of Larry Williams' Long-Term Secrets to Short-Term Trading is about an Outside Day with a down close [Day 1] followed by an Inside Day [Day 2]. This is a very reliable bullish short term trading setup: Bought the next day at the open [Day 3], this setup is profitable in the S&P500 90% of the time. Expect the ES/Emini to rise above Day 1 (HERE).

Tuesday, July 26, 2022

Range, 3 Day SMA, Day Counts & Reversal Harbingers

A day in which there is a new high followed by a lower close is a downwards reversal day (RB). An upwards reversal day is a new low followed by a higher close. A reversal day by itself is not significant unless it can be put into context with a larger price pattern, such as a clear trend with sharply increasing volatility, or a reversal that occurs at the highest or lowest price of the past few weeks. Short-term reversals are likely after wide-ranging (WR4) and narrow-ranging days (NR4), especially when the open, high, low and close of the daily price bar are altogether above or below of a simple three-day moving average line of daily close prices.

A wide-ranging day is likely to be the result of a price shock, unexpected news, or a breakout in which many orders trigger one another, causing a large increase in volatility. A wide-ranging day could turn out to be a spike or an island reversal. Because very high volatility cannot be sustained, a wide-ranging day will likely be followed by a reversal, or at least a pause. When a wide-ranging day occurs, the direction of the close (if the close is near the high or low) is a strong indication of the continued direction. An outside day (OB) often precedes a reversal. An outside day can also be a wide-ranging day if the volatility is high, but when volatility is low and the size of the bar is slightly longer than the previous bar, it is a weak signal. As with so many other chart patterns, if one day has an unusually small trading range, followed by an outside day of normal volatility, there is very little information in the pattern. Context and selection are important.

An inside day (IB) is one where the high is lower than the previous high and the low is higher than the previous low. That is, an inside day is one where both the highs and lows are inside the previous day’s trading range. An inside day represents a narrow range consolidation and lower volatility. In turn, lower volatility is most often associated with the end of a price move. After a burst of activity and a surge of direction, price has reached a point where buyers are already in and price has moved too far to attract more buyers. Volume drops, volatility drops, and an inside day follows. An inside day is definitely followed by a breakout, either into a continuation of the previous trend or into a change of direction. 

Monday, May 30, 2022

Daily Range = Accumulation + Manipulation + Expansion + Distribution (AMD)

Accumulation (A) of positions generally occurs during the Asian session. The accumulation is characterized by being a consolidation.

Manipulation (M) usually occurs at the opening of the London session (sometimes at the NY open). It consists of taking the price to the opposite side of the true directional Expansion of the rest of the day.

Distribution (D) occurs when Market Makers liquidate (exit) their positions.

This AMD-Principle is represented in every bar of every time-frame (monthly, weekly, daily, 4 Hour, etc.) with a price value at which it starts trading (opening price), the highest price value (high), the lowest (low), and  a value of the time it ends trading (close). The AMD-Principle can be observed in all financial markets - Forex, stocks, indices, commodities, bonds, etc.


Thursday, December 13, 2018

Contraction > Breakout > Expansion | Toby Crabel's Price Patterns

Larry Williams described all of market's action
in 8 patterns characterized by direction, contraction
and expansion (e.g. HERE)
In 1990 Toby Crabel published Day Trading With Short Term Price Patterns and Opening Range Breakout. The book is about the fundamental nature of price action, about contraction and expansion, the ebb and flow of price in all markets. Looking at daily bar charts, expect breakouts and / or changes in trend after the following price bar patterns:
Narrow Range (NR): A price bar's range less than the previous bar's range. The opposite of NR is Wide Spread (see below). NR is technically NR2 when compared to NR4, NR5, and NR7 (see below; more e.g. HERE).  

Narrow Range 4 (NR4): A price bar's range less than the previous 3 bars' ranges is the narrowest range in 4 days or NR4. The opposite is WS4 (see below; more e.g. HERE). 

On Dec 13 (Thu) the E-mini Nasdaq 100 Futures and other US stock indices performed a IDnr4 down day.

Narrow Range 5 (NR5): A price bar's range less than the previous 4 bars' ranges is the narrowest range in 5 days or NR5. The opposite is WS5.

Narrow Range 7 (NR7): A price bar's range less than the previous 6 bars' ranges is the narrowest range in 7 days or NR7. The opposite is WS7 (more e.g. HERE).

Wide Spread (WS): A price bar's range wider than the previous bar's range is a WS. The opposite is NR. WS is technically WS2 when compared to WS4, WS5, and WS7 (more e.g. HERE).

Wide Spread 4 (WS4): A price bar's range wider than the previous 3 bars' ranges is the widest range in 4 days or WS4. The opposite is NR4.

Wide Spread 5 (WS5): A price bar's range wider than the previous 4 bars' ranges is the widest range in 5 days or WS5. The opposite is NR5. 

Wide Spread 7
(WS7): A price bar's range wider than the previous 6 bars' ranges is the widest range in 7 days or WS7. The opposite is NR7.

Inside Day (ID): If the high of the current day is lower than the high of the previous day AND the low of the current day is higher than the low of the previous day we have an ID or Inside Day. The opposite is an OD (more e.g. HERE).

Outside Day (OD): If the high of the current day is higher than the high of the previous day AND the low of the current day is lower than the low of the previous day then we have an OD or Outside Day. The opposite is an ID
(more e.g. HERE).

Inside Day (ID) and NR4 (
IDnr4): An IDnr4 is a combination of an ID and a NR4. This happens when the current day's high is lower than the previous day's high AND the current day's low is higher than the previous day's low AND the range is the narrowest when compared to the previous 3 trading days (more e.g. HERE).

2 Bar Narrow Range (
2BNR): The 2-day-range (the higher of the 2 highs less the lower of the 2 lows) is the narrowest 2-day-range in the last 20 trading sessions.

3 Bar Narrow Range (3BNR): The 3-day-range (the higher of the 3 highs less the lower of the 3 lows) is the narrowest 3-day-range in the last 20 trading sessions.

4 Bar Narrow Range (
4BNR): The 4-day-range (the higher of the 4 highs less the lower of the 4 lows) is the narrowest 4-day-range in the last 30 trading sessions.

8 Bar Narrow Range (
8BNR): The 8-day-range (the higher of the 8 highs less the lower of the 8 lows) is the narrowest 8-day-range in the last 40 trading sessions.

BearHook: A NR with the Open less than the previous bar's Low AND the Close greater than the previous bar's Close (more
e.g. HERE).

BullHook: A NR with the Open greater than the previous bar's High AND the Close less than the previous bar's Close (more
e.g. HERE).

Stretch: The Stretch is calculated by taking the 10 period SMA of the absolute difference between the Open and either the High or Low, whichever difference is smaller. For example: if Open = 1,250, High = 1,258, Low = 1,240, then take the value of 8 for that day because 1,258 - 1,250 = 8 which is smaller than 1,250 - 1,240 = 10. Then add together all of these values for the last 10 trading days and divide this by 10 to get the 10 day SMA. This value will then become the Stretch. The Stretch is used in calculating where to enter the trade and where to place a stop using the ORB and ORBP trading strategies (see below). 

Simple Moving Average (SMA): An SMA is calculated over a number of candles/bars in a chart as the simple average value of that number of bars, e.g. the SMA for the last 10 days closing prices of the DJIA: add together the closing prices for the last 10 days of the DJIA and then divide that by 10 = 10 day SMA. You do not need to use just the closing price to calculate this. You can also use the Open, High, Low, and Close or a combination of any of those, e.g. HLC/3.

Opening Range Breakout (ORB): Using this strategy, a buy stop is placed just above the Open price plus the Stretch and a sell stop just below the Open price minus the Stretch. The first stop triggered enters the trader into the trade and the other stop becomes the protective stop. The earlier in the trading session the entry stop is hit the more likely the trade will be profitable at the close. A market movement that kicks off a trend quickly in the current trading session could add significant profit to a trader's position by the close and should be considered for a multi-day trade. As time passes and we are not filled early on then the risk increases and it becomes prudent to reduce the size of the position during the day. Trades filled towards the end of the day carry the most risk and the later in the day the trade is filled the less likely the trader will want to carry that trade overnight (more
e.g. HERE).

Variations of this strategy include the
Opening Range Breakout Preference (ORBP): An ORBP trade is a one sided ORB trade. If other technical indicators show a strong trend in one direction then the trader will exercise a "Preference" for the direction in which to trade the ORB trade. A stop to open a position would be placed on the side of the trend only and if filled a protective stop would then be placed. The calculation of where to place the "stop to open" would be the same as that for the ORB trade: For longs, the Open price plus the Stretch and for shorts the Open price minus the Stretch. The ORBP trade is a specialized form of the ORB trade (more e.g. HERE). 

Thursday, April 26, 2012

Capturing Trend Days | Linda Bradford Raschke

Linda Bradford Raschke (1995) - 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:

Saturday, January 12, 2013

Decennial Pattern for 2013

Larry R. Williams: The Right Stock at the Right Time, p. 11
In his book Tides and the Affairs of Men (1939), Edgar Lawrence Smith presented the idea of a ten-year stock market cycle. Smith's theory resulted from combining two other theories, Wesley Mitchell's 40-month cycle theory and the theory of seasonality. Combining these two periods, Smith theorized that there must be a ten-year, or 120-month, cycle. 

This would result from ten 12-month, annual cycles and three 40-month cycles coinciding every 10 years. When Smith investigated prices more closely, he found that indeed there appeared to be a price pattern in the stock market that had similar characteristics every ten years. This pattern has since been called the decennial pattern.

Smith used the final digit of each year's date to identify the year in his calculations. He termed the years 1881, 1891, 1901, etc., as the first years; 1882, 1892, etc. are the second; and so forth. 

"The 10-year cycle continues to repeat over and over, but the greatest advances and declines occur at the end of the 20-year and 30-year cycles, and again at the end of the 50-year and 60-year cycles, which are stronger than the others.

W.D. Gann (1954): Master Stock Market Course, p. 224