This morning's hypothesis was that there was a strong probability that today, or at least this morning, would be a narrow range market.
In the first hour of trading, I saw volume well below average, which indicates that the big guns were not buying this market this morning. The NYSE Advance - Decline Line was well below Friday's levels. So there was a good chance that fading tests of the highs would yield profitable trades, and that is what happened. The numerous $TICK divergences also helped to confirm the hypothesis.
Charles
Charles how do you know that hypothesis? Any clues you could help me with?
ReplyDeleteThanks
Daniel
Typically days with above average ranges and a strong trend in one direction are followed by a narrow range day. Use divergences and volume to confirm that large traders are not in the market. With that type of confirmation, the probability increases that you will have either a narrow range morning or day.
ReplyDeleteAnalyze back data to convince yourself that this happens and how often.
One example of a situation where this may not work is the fall of 2008. During that time period, large hedge funds were forced to liquidate due to margin calls - so the market just kept going down for a long period of time.
Charles