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* Although a trading range day is very likely, these ranges are usually wide enough to provide opportunities for both scalpers and swing traders. | * Although a trading range day is very likely, these ranges are usually wide enough to provide opportunities for both scalpers and swing traders. | ||
= Three scenarios of gap opens = | |||
Whenever a gap open, two key factors need to be considered: the size of the gap and the location of the open. | Whenever a gap open, two key factors need to be considered: the size of the gap and the location of the open. | ||
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[[文件:Soft trend.png|1000x1000像素]] | [[文件:Soft trend.png|1000x1000像素]] | ||
Let's take a gap down day as an example: If the market continues with a weak bear trend, the price action will exhibit a Spike and Channel, where the entire gap-down range is the spike. On the other hand, if the price action is doing a soft bull trend, then it's a pullback as a 2-3 leg bear flag (again, considering the gap distance as a large bear bar). In other words, if the soft bull trend fails, the market often continues selling-off, extending the gap and distancing itself further from the close of yesterday. As a swing trader at this point, to achieve a better risk-reward, one should anticipate the day's low point to be tested and hold onto the trend, allowing winners to run for 2-3 legs. | Let's take a gap down day as an example: If the market continues with a weak bear trend, the price action will exhibit a Spike and Channel, where the entire gap-down range is the spike. On the other hand, if the price action is doing a soft bull trend, then it's a pullback as a 2-3 leg bear flag (again, considering the gap distance as a large bear bar). In other words, if the soft bull trend fails, the market often continues selling-off, extending the gap and distancing itself further from the close of yesterday. As a swing trader at this point, to achieve a better risk-reward, one should anticipate the day's low point to be tested and hold onto the trend, allowing winners to run for 2-3 legs. | ||
= The Perfect Odds of 1st Reversal Setup = | |||
Here's an easy way to think about it: In a large gap open, traders are exposed to "price risk." In simpler terms, bulls entering after a large gap-up open may end up buying too expensive, while bears entering after a gap-down open may end up selling too cheap, right? But it's not always the case, especially the gap is one of the largest gaps in a few weeks and more than an average day's range. In this case of very large gap opens mentioned in the figure above, the market favors gap extension with a hard trend in the direction of the gap, possibly the entire day with a pause of TR around noon. So notice that the reversal setup discussed below is not for very large gap opens as they are rare. | Here's an easy way to think about it: In a large gap open, traders are exposed to "price risk." In simpler terms, bulls entering after a large gap-up open may end up buying too expensive, while bears entering after a gap-down open may end up selling too cheap, right? But it's not always the case, especially the gap is one of the largest gaps in a few weeks and more than an average day's range. In this case of very large gap opens mentioned in the figure above, the market favors gap extension with a hard trend in the direction of the gap, possibly the entire day with a pause of TR around noon. So notice that the reversal setup discussed below is not for very large gap opens as they are rare. | ||
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However, discussing the opening reversal here doesn't mean you should only look for reversals and give up a good trend from the open. If the opening reversal does happen, find weakness of the reversal around ema or 50% of the day to buy or sell again and follow the major trend. Therefore, after the market opens, the first step is to understand the market's behavior and try to catch the AM trend: Is it developing a hard buy the close/sell the close trend, a trading range, or a soft bull/bear trend after a few bars? If hard trends, fade dojis in the 1st leg; if soft trend, trade pullbacks until seeing the 3rd leg. For trading range open, consider trading a failed breakout or a failure of a failed breakout for the best probability. This major AM trend may persist for the entire day or only a few bars, depending on the context. But generally, if your trailing stops haven't been hit by the 4th or 5th leg, it can be considered a very successful swing trade. | However, discussing the opening reversal here doesn't mean you should only look for reversals and give up a good trend from the open. If the opening reversal does happen, find weakness of the reversal around ema or 50% of the day to buy or sell again and follow the major trend. Therefore, after the market opens, the first step is to understand the market's behavior and try to catch the AM trend: Is it developing a hard buy the close/sell the close trend, a trading range, or a soft bull/bear trend after a few bars? If hard trends, fade dojis in the 1st leg; if soft trend, trade pullbacks until seeing the 3rd leg. For trading range open, consider trading a failed breakout or a failure of a failed breakout for the best probability. This major AM trend may persist for the entire day or only a few bars, depending on the context. But generally, if your trailing stops haven't been hit by the 4th or 5th leg, it can be considered a very successful swing trade. | ||
= Discussion of an example = | |||
[[文件:Screenshot 2023-05-19 at 1.56.02 PM.png|700x700像素]] | [[文件:Screenshot 2023-05-19 at 1.56.02 PM.png|700x700像素]] | ||
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Generally, hard trends have the following characteristics: | Generally, hard trends have the following characteristics: | ||
* Pullbacks in a strong trend typically result in dojis, and each bar's high is rarely tested by the next bar. For example, b57 and b59 on that day. It's quite hard for limit order scalpers to enter above bars so STC(sell the close) and sell sometimes 33% of big bars are the best options. | * Pullbacks in a strong trend typically result in dojis, and each bar's high is rarely tested by the next bar. For example, b57 and b59 on that day. It's quite hard for limit order scalpers to enter above bars so STC(sell the close) and sell sometimes 33% of big bars are the best options. | ||
* Signal bars in a strong trend are strong but not excessively large (i.e. more than 2-3 average bars). For instance, bar 54 was a strong and moderately sized signal bar. Hard trends rarely have a two-leg retracement towards the moving average. | * Signal bars in a strong trend are strong but not excessively large (i.e. more than 2-3 average bars). For instance, bar 54 was a strong and moderately sized signal bar. Hard trends rarely have a two-leg retracement towards the moving average. | ||
* Strong trends disregard minor support levels and focus on major ones. Buying near the moving average at b54, the retest of the b19 high, or the opening price would have been reasonable, but the market only found support until a major support level in a higher timeframe around bar 70. | * Strong trends disregard minor support levels and focus on major ones. Buying near the moving average at b54, the retest of the b19 high, or the opening price would have been reasonable, but the market only found support until a major support level in a higher timeframe around bar 70. | ||
[[分类:Al Brooks Articles]] | [[分类:Al Brooks Articles]] | ||
[[分类:内部预览]] | [[分类:内部预览]] | ||