Classic Geometric Patterns and Narrow Range Setups

I have been looking into developing a filter to catch similar patterns intraday. Have you had any luck or see any sense in this?

The idea is to do the same thing you are except intraday. Currently no software I know can do this the way I want.

 

I found something I called "TWS"(after studying TA-books and then the market). http://www.aksjeinfo.com/ubb/Forum1/HTML/000130.html

Can explain later. I looked at VIX now, there is a bull-flag --> VIX break up and SPX break down.

TWS, yes... thats a ca. 3 bar pullback in a strong trend. Best for strong trending stocks, but also ok for indexes. Often a narrow range bar(doji...).

 

I will be doing a webinar for CyberTrader in mid November on the topic of RANGE CONTRACTION in all of its many forms.

I will be talking and sharing out live charts for you to see and hear. It is free and will not be some minor watered down come on. I will go into great detail on the subject and answer questions as well.

I will post the details here soon. Here once a gain is a detailed but smaller sample of what I will be talking about.
http://www.thestockstalker.com/id13.html

mdl060374 I will be getting some info to u soon on a scanner for intraday contraction setups...


Good Trading,
Oz

 

Hate to burst your bubble guys.. but i spent some time backtesting all these narrow range days on equities.. with many different types of entries and exit.. We tested it on daily data for many different stocks the past 5 years...

Bottom line.. there is no EDGE..




--MIKE

 

Carbel mentions in his book.. it is more relevant to currencies and commodities.. I agree with him..

Using currencies with a daily chart time frame.. would be ideal.

 

<i>Bottom line.. there is no EDGE.. </i>

No Mike, I am not wrong. You just have to know what you are doing.

First of all and most importantly is this... There is no such thing as a ONE BAR PATTERN. That would be the same as saying "I can name that tune in one note". So to say someone is tone deaf for not naming the song in one note is silly because there were no PATTERN of notes to follow but just one sound.

NR7 is just one aspect of range contraction and it a trigger more than anything. It is NOT a pattern and to backtest just a narrow range day would surely show nothing. A narrow range day is the equivalent of the pause in the air a coin makes just before it comes back down.

The concept is so simple yet most miss it and that of course is the beauty of it.

Oz

 

I agree.. if the pattern backtested alone has no value.. why would it have value when combined with other theories...

Its nice to cherry pick charts when the NR's had some type of perdicitive value.. but lets be real here.. take a few stocks.. and plot each NR's then work from there..

I cant believe people actually waste there time with cherry picked garbage.. thats why we have raw PC power.. to backtest ideas and pattern that can show a true edge.

--Mike

 

The concept has no merit statistically in equities.. its a small narrow bar.. with no edge whatsoever... I challenge anyone to show me so backtested proof that there is even a tiny edge using them for triggers or whatever in the equities markets..

Yea.. when u combine it with trendlines, MA's, volume analysis, everything fits in together.. lol

 

I started a thread a while back on Opening range breakout. I included links to 20 minutes of my video on the topic. Here is the link to that thread.

http://elitetrader.com/vb/showthread.php?threadid=54765

Here is what I have found. First opening range breakout has degraded in performance since it has become so popular in the stock indexes, not some much yet in individual stocks. When we combined this with reduced volatility over the past 2 years in the indexes we see overall bad performance. This is not true in all markets. Opening range breakout need volatility because that creates the greed, which makes breakout follow though. Traders need to feel something special is happening which they can’t miss.

I did do a lot of work on NR patterns, and did find that except for the doji, they do not offer any special edge.

What is important about them is that volatility cycles, for low to high, my research show that profit in opening range breakout occurs on big range days. The value of these NR days is as a pointer to look for a bottom in this volatility cycle, which will lead to periods of range expansion and big range days are the profitable ones in opening range breakout.

I agree that you can’t look at them as one bar or even two bar patterns, just a piece of a larger pattern. You need to use them as part of a pattern which predicts a period of range expansion.

Please watch part 1 of my video, which is free the link is

http://www.tradersstudio.com/Default.aspx?tabid=129

I discuss in part two of my video predicting big range days, this segment is free but requires registration on TradersStudio.com

If you have any questions , I feel free to ask.

 

<i> I did do a lot of work on NR patterns, and did find that except for the doji, they do not offer any special edge.</i>

Then you say
<i>The value of these NR days is as a pointer to look for a bottom in this volatility cycle, </I>

I find these two comments in direct contradiction to each other. If something has "no edge" then it cannot go on to having "value" in almost the next breath.

The value of nr7 bars is the "when" more than the "what". If they in any way clue me in on when "the bottom of this volatility cycle" is then that is a significant piece of information and one that can manifest my edge.

They help the trader break away from sophomoric pure momo strategies and moves then into the enlightenment of the fact that low volatility begets big price movement.

I used a coin analogy earlier but now let me use a brick. We are standing next to each other and then I launch a brick into the air and we measure vertical movement using a 1/2 second time frame and chart it. The first 1/2 second the brick travels 2 feet or 24". Then the next measurement is 20" and then 14" and then 10" and so on. Then suddenly the brick seemingly stops in mid air and only travels 1/4" on that last measurement. It is the smallest range of travel in the last 7 measurement (an NR7).

What are you going to do at this point? ? Well unless you want to get hit on the head with a brick you are going to run out from under it. And the reason you are going to do so is because you know that the pause in the brick in the air is because it is about to reverse and go the other way.

This is a perfect example of shorting a rally in price. Even though there had been significant movement in price up to the pause, it offers an excellent opportunity to get our of the way or to go ahead and pound it and give it a push.

We also frequently use the same kind of information when we enter a road from a parking lot when there is an oncoming car that is slowing at an increasing rate as they near the entry to the lot. Even if their signal is not on and a change of direction has not been initiated yet we all have seen that this is done by drivers every day and most do survive. With trading it is even better because we can stop our losses when trading on the assumption and not get hit by a car and die

So NR7’s can be used as needle point triggers in prolonged volatility range contractions as you say but they can also be used where there is already movement and to signal a change of direction based on the “something is changing” aspect of the feedback it is telling you.

Good Trading,
Oz