1) Price will either breakout of the high, low or both of the previous bar
2) Price will not breakout of the previous bar.
3) Price will either close above a level (line) or not.
There are 4 STATES the current bar can be in when compared to the previous bar:
In 2014, Larry Williams presented a talk on Range Daily Structures and here is some of the info he presented along with a link to a 25min Edgerater video on his talk:.
Ed S.
"Breaking down the market into simple structure
Larry suggested the market can be simplified into only 4 possible daily structures:
Down Range: Day’s high is lower than the prior day’s high and day’s low is lower than the prior day’s low.
Up Range: Day’s high is higher than the prior day’s high and day’s low is higher than the prior day’s low.
Inside Range: Day’s high is lower than the prior day’s high and day’s low is higher than the prior day’s low. Occur approx. 12% of the time.
Outside Range: Day’s high is higher than the prior day’s high and day’s low is lower than the prior day’s low. Occur approx. 12% of the time.
Within these 4 patterns each last day could either be an up or a down day and so there are actually 8 possible patterns:
Down Range, Down day
Down Range, Up day
Up Range, Down day
Up Range, Up Day
Inside Range, Down day
Inside Range, Up day
Outside Range, Down day
Outside Range, Up day
Using these 8 patterns you can create some powerful strategies.
Entry and Exit technique
Larry presented backtested 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 were as follows:
Range Type % Wins #Trades Net Profit Avg Profit / Trade
Up Range, Up Close 80% 667 -$3,000 -$3
Up Range, Down Close 80% 312 $32,150 $103
Outside, Up Close 81% 201 -$13,000 -$66
Outside, Down Close 83% 255 $38,100 $150
Inside, Up Close 84% 228 $8,700 $22
Inside, Down Close 84% 227 $8,700 $38
Down Range, Up Close 82% 330 $32,300 $95
Down Range, Down Close 83% 560 $70,000 $125
So, the Down Range, Down Close day 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:
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