Friday, 20 February 2015

Range & DP's

RANGE

I assume the prices move in a range all the time.  Trend is nothing but a series of range breakouts.
There will always be a range above the current range if prices are really going upward and there will always be a range below the current range if prices are really going downward.

Prices may remain in a narrow range or a wide range for some time and may not trend.  If the range is tradeable, prefer to buy the range low and sell the range high.

DP's (decision points) are price levels where day traders are expected to act.  Usually these DP's act as a range extreme in day trading.

Sometimes the range establishes itself at or around DP.  If so, it will provide a good trade opportunity at that area.

The range can be traded at the range extreme after a test (TST), on breakout pullback (BPB), on breakout failure (BOF), or after a failure to continue (FTC) kind of setup.

Many a times BOF of one range extreme can lead to successful BO of other range extreme.



Prefer to trade in the direction of underlying trend or bias.  If the current trend or bias is down where prices are breaking the DPs or range on downside, prefer to trade the sell signals at range extremes or DP's rather than buy signals.
In the example below, the presumed trend is down.  In that case, the most preferred sell signal will be the A at upper range extreme and the second most preferred will be the B at lower range extreme.  If market condition is suitable to take a counter trend buy signal, I would prefer to go with the D at upper range extreme and probably avoid the C.  However, sometimes trading the C is a good idea if the market is poised for a reversal.  I will try to write more about Reversals in the next post.



Similarly, in case of uptrend, the preferred one will be the A and then B.  D will be the only sell signal that I will take.



Like this,



Only ranges and DP's cannot be traded in isolation with the patterns.  Let the other factors like Space, Order Flow, Critical Mass, Trend Strength, Risk Vs Reward  be your guide.

4 comments:

  1. Daveji,

    Thank you so much for the detailed explanation. I need a few clarifications.

    I have noticed that during uptrend, when price makes a higher Range above Initial Range, it makes 2 attempts to break Range Low, before moving up to break Range high and form another higher Range.

    There is a difference when BRN is RL. When BRN is broken strongly(say by 20 points), price pulls back to BRN, just touches BRN and then quickly races up breaking the RH and forming a higher Range, Here the second attempt at RL is most probably not made. How do you deal with those situations where other fixed DPs like PDC and PDH happen to be RL? Here we can take TST Long at the first testing itself or wait for the second attempt?

    There are no issues, when fixed DPs are not RL. Here,only after the second attempt, it gets confirmed as RL.

    How do you decide when exactly to take TST/FTC/BOF Long? - after the first attempt at RL or second attempt at RL?

    Thanks,
    S.Karthikeyan



    ReplyDelete
    Replies
    1. SK

      Try to analyze the strength of DP or a range extreme. If you feel it is strong, then most probably on first attempt to test it, it will not successfully break it. Price will often test a good level again. If it holds the second time or third time, I feel it is a good signal. Trading ranges and DPs is all about constantly evaluating the acceptance and rejection at a particular level.

      If there is a confluence of range and DP, simply trade it. Most of good trades originate from this area.

      I would take TST only with the trend and at a strong level. I am still not comfortable with FTC kind of setup. BOFs are always most preferred one.

      URD

      Delete
    2. Daveji,

      Thanks a lot for the detailed reply.

      S.Karthikeyan

      Delete
  2. Sir, thanks for sharing your knowledge!
    You have given me something to think about.

    -MarketStudent

    ReplyDelete