ES Daily Range Study

In Traderfeed blog, a recent post discusses the "Six Signs of a Range Bound Market".

You can also plot the range changes from one day to the next to spot range patterns. In the chart above, which plots the difference between today's range from yesterday's range (Today's Range - Yesterday's Range) you can see that the general pattern for the ES market is one to two days of increasing range followed by one to two days of decreasing range.


In a recent blogginheads.tv titled "How MacGyver Made Our Minds" , a discussion between Gary Marcus (professor of psychology at NYU) and writer Carl Zimmer mentions that our memories are designed to dwell on the most recent thing that happened. In other words, if yesterday was a wide range day, we have a tendency to think that today should also be a wide range day, when in reality, today is most likely to be a less wide range day than yesterday. Another occurrence that gets me into trouble frequently, is that if yesterday was a wide range day with a strong downtrend, I think that today should also be a wide range day with another strong downtrend, when in reality, today will probably be a narrow range day and possibly with a tendency to uptrend.

To be objective in the daily trading of this market, we must always be aware of our mental flaws, and focus on what is actually happening in the markets and not dwell on what we think the markets should be doing.

Markets have wide range days usually due to an unexpected movement in the market for unexpected reasons. These wide range days are created by weak long positions that are forced to liquidate, or by weak short positions that are forced to cover. As Linda Raschke said in a seminar that I attended a few years back, strong, one-directional markets move in that direction not because they want to, but because they have to move in that direction. Perhaps after a day or two of momentum movement, the market typically will correct in the opposite direction, perhaps creating another wide range day, which tends to happen about two or three times per month.

Charles