Inside Previous Day Trading

[del]

Is this a common trading method?

On a 10 minute chart for an index....dax, ftse.... If todays trading ends within yesterdays it is used a signal for a breakout or trending. Is this a viable indicator? Your comments.

 

[oatman]

Inside Day is a term for exactly what you've described. It would signify less volatility/action, so presumably more chance of a break
out.

Cheers

 

[del]

Hi Oatman,
Any specific author?

 

[Skimbleshanks]

del - it sounds to me as if you are talking about an inside bar on an end of day chart.

If the previous activity was a trend up, then the inside bar 'sort of' represents an intraday triangle or flag, therefore you would not be surprised if the resulting action on the day after the inside bar was to break up, ie continuing the trend prior to the inside bar.

But ... you do get inside bars at awkward places on a chart, and many people just play the breakout, irrespective of whether it goes up or down.

Perhaps the most well-known inside bar play is the NR7 - this means the narrowest range of seven days. This was popularised by Alan Farley and Linda Bradford Raschke, among others. Alan Farley, I believe, also calls it a coil (too lazy to look it up I'm afraid). The range is the distance between the HOD (high of day) and LOD (low of day), and on a day when the range is the smallest of the previous seven days, you get a sort-of pressure cooker effect - pressure builds up until she pops! These days are excellent days to trade because they're often a trend day from start to finish.

 

[del]

Hi Skim,

That puts it in perspective.
Was looking at methodologies/strategies and variations of inside bar kept cropping up .....seems to be common practice. Read Martin Cole's book which uses this over three days - similar to LSS 3 day cycle.
Have been keeping an eye on Naz and level 2 ... seems far more practical. Can you trade S&Peminis future using level2 ? Or is just a direct acess broker?

 

[fastnet]

Hi - I'm working my way thru the various trading strategies presented in LBR & Larry Connor's book ''Street Smart''. The NR7 and NR4 set ups are very intuitively attractive especially the concept of volatility coming in waves.

However I have reviewed charts (mainly FX) from the first fortnight this year and found that not only are you very often stopped out on the first break (ie reverses and breaks the other way) but that this break also often dies out and closes tracing a day with only a little more volatility than the NR4 or 7.

I have read that this is to be expected although I am very conscious that Steet Smarts might well already be out of date. The idea is that you keep taking small losses and taking every trade until you catch the start of a 2-3 day trend.

Does anyone follow this set-up on an EOD basis? If placing trades with a spreadfirm do the winning 10% of trades pay for all the double spreads you would have to shell out for?

As always, any advice gratefully received - in fact I would be really pleased to hear from anyone else out there experimenting with strategies from ''Steet Smarts''.

Cheers

 

[Skimbleshanks]

IMO if you're trading EOD, then the NR7 or NR4 days are NOT the time to get IN to a trade, because these patterns are continuation patterns, not trend reversal patterns.

If you are already long, and are using the low of the previous day as a stop, then your stop will keep you in the trade regardless of which way it breaks out. The bars to watch out for are the key reversal ones, in which case your stop is likely to have been hit. Then you reverse to short, and put your stop at the top of that day's bar, and work your stop down the daily bars, like going down stairs.

As with so many things in trading, once the term NR7 is known, it will be faded by the clever ones, which is why they're not as good as they once were. And for anyone who doesn't know, NR7 means the Narrowest Range for the last 7 days.

 

[Skimbleshanks]

del:

Apologies, I've only just seen the question you asked. Level2 is for use with stocks, not futures. Futures such as the emini S&P (ES) are electronically traded and buyers match sellers, with no market makers inbetween.