: i i t t i i i % & g 5 @ ‘recent bars are mating higher highs and higher lows, ten itis trending up. On ‘highs marks @ down trend. I the bars ae ovelapping, fs Sdewayes or balanced, 4. The green candles in tre ie are making tes highs and higher lows. It one Une framing vp or an up tend. ‘The one time framing up actly star's withthe green candle after the red candle inthe cil. 2. The candles ore overlapring. Ovelopping activity start with the second candle inthe cic. Third candle breaks {te high and low ofthe second candle, but remains almost within the range ofthe frst cal. 3. Onetime framing down. In cele 3, one down candle breaks the high and lw of te previus candle, slit down tuend, taking into account the dose and recent candles. “Thisi¢ move of 2 visual estimate, but can be coded into a system. More information can be found in “limes Dalton books. Now we are coming tothe secand part of the strategy. We define open out of range asthe market breaks _aoie/below the previous day high/low in the frst few minutes of market open (say S minutes) or when market ‘bers (rst Uk) out ofthe previous day range and comes back nto previous éay range immedatey. Note thatthe ‘per tek alone not taken, but the fis few minutes of the open as opening. This makes more sense than ushg the fisttick, (, after the out of range open, 3 the market develops trough the day, the breakout from previous day range may conte ofl. Now we use the price action t the opening to decd ‘to.go withthe opening trend or fade the opening tend. There s lot of material avalable on price ation trading, bere what we refer to as pice action is what the pice Is doing. We use cance stick cha to" sualze this prce acon. Nom viewng a trade setup s the easy ‘way to understand pice acton.“The market s balancing or sideways forthe last day chart was not include). Observe the red cided area. I's an 2 minute chart of NIFTY FUTURES on 5-3-2012. The fist candle was 3 long black candle in canclesick charting terminology. The long Back body indicales dominance of sells. Second candle was a smal inside candle. Fist ‘ande closed below previous day low ( the redline) and second candle was an inside bar whic closed Below ‘revous day low. Now the prize action from these two candles indicates that sellers are in charge ard. down move ks ‘expected. This inference is arguable, but taking Into accourt market corte (Balance) and the fac that open breaks coven below previous day low fdication that sllers are in charge at the open. IF there is buyers looking for an ‘cpportnity to buy low, they would have stepped in immediately and taken prices higher. After a balance, markets \sualy breakout and stong vertical moves develop before next balance. ‘Now enizy level and stop loss levels. Under this scenario we place a sell order around the chse ofthe second candle ‘oF previous day low. We cant expect entry atthe exact level If aled to enter atthe third cane, then one can enter ‘3: the pul back to the region between cose ofthe fist two candles and previous day low. Our usual stp oss for [NIFTY comes around 12 15 points depencing on voiabity and target's 2 tmes the risk ater takng Sippage and ‘ass. So. target is 30/35 points. We wil discuss fnding optimum stop losses in ancther post. ere ishow the day developed. “Trading ths strategy is about understanding the market coateit and price action at market open. Once the concent ae interaizes, trading is simple, There are some patterns at market open that heps in interalizing the Srateoy. ‘These patterns are dscussed in detal in the coming pats of ths sequence. Market Open Out of previous day Range - 2, Setup -1 “Ths posts contnuation ofthe Market Open Cut of Previous Cay Range seis of posts. Part one provided an overview ofthe sirategy “The key pains we dscussed in previous post was How to Mentfy bend, Definkion of open out Of ange and Price ‘Acton, In this post Tem developing setup wo. 1 for open out of renge. This is» powerful setup and i properly ‘dented, around BO% ofthe time the trade ca winner with 1:2 ik reward after costs and sippage. : eat“The picture i a Nity Futures 2 minute candle chart on 1-10-2012. The frst bar isa Long White candle, with no, significant upper wick Secend candle an inside bar. Setup First cand do not have a significant uber wick and it must bea long white candle. Second candle closes within ot Ite above the top of the fist candle. Second candle do not trade down significantly with respect tothe frst candle. Second candle range should be signiicantly smaler compared to fist candle. The day chart must be one time framing up or bracketing. Ifthe daily charts one time framing down, there must be strong evidence that an excess low about to form (Ths we Will covern ancther fost, for now understand that prices trades in te oppesite ‘econ of daly tend wh momentum and the bar clases near the high ofthe candle), There shoud De nO anled ‘92p oF significant swing high (bot formed recent) immediately above the price level. And fnaly the resent ees Re Corn ieeiom a neh IR ne ans een Enter lng postion within the range ofthe second candle after the second candle is completed. Apply a stop loss basad on recent vlaity This also wil be covered in another past as this is common to al setups. Usually soo loss 1515-20 points for nity). Bat “Take proft when trade moves in favor by 2 times the rsk taken. “That it. You should intemaize this Setup by observing charts and real tme development ofthis setup. Then only ‘one can take advantage from ths Setup, The chart below shows ow the day developed iter. er is another setup, Note that inthis case the second candle ofthe new days not an inside bar. ‘One more eximple, note that inthis case te upward move nok aS smooth as the previous two charts.Tes lt cn Tk lbs vey on tah vod Toe Slava asp eu ca ome a ome en a Theo te pst {chon pat noutrs ow bec a espondng foe preset chnge sexiest. The scons nD any ‘orms, We read them inthe fame work of pater. Market Open Out of previous day Range - 3, Setup -1 More Examples Some trades occured with ths satu in NIFTY futures in recent days, Ths also shows the variation in which this ‘setup unolés, some formed near prevous day extreme, some after a G20 open. Read the first two posts in this series Market Open Out of previous day Range if you are nk familiar with this setup, ‘This trade occurred on 09-03-2012. The prior day Markt tend was down, but there & evidence that a swing low is forrng Ts was cvtmed ty bat 30 pont gap up cpen on CB5-2012. The by opgornityocrured immediately after setup completion inthe second bar. ‘The next trade occured on 05-03-2012. On day char, the prior day Wty was bralating (sideways). There was 2 ‘ice down move after te setup. The sell opportunity occures many times after the setup completicn, out before te big down wave‘Next one occurred on 27-02-2012, Nifty was onetime framing down, the prior day. This trade also developed into a ‘geod down move. The sel opportinity ocurred mmediately after competion of the setup inthe second bar. Market Open Out of Previous Day Range - 4 Setup -2 “The second setup inthe series Market Open Out of previous day range. This is 3 powerful setup to fade the gap open, Before proceeding to deta OF te setup, you should have @ fm understanding ofthe concepts detailed in other oats ofthe series. Review the previous artic in Market Open Out of previous doy range series if necessary. Fist determine the trend from daily charts. The open must be 2 gap up ard the gap ce must be sgnifcat, in ‘elation to recent ATR. Seup “These rules epply for 2 Shot (Sel) wade. Open must bea gap up open. The fist candle (2 min chert ts used) must bea black candle. Fret candle doos net forma longer lower wick. Second candle ako back candle and candle range 's smal in comparison to fst candle (out a white doi wil also do), Second candle should nat trade above the high of the frst conde and better if forms around the ower part of frst candle. The conceot there sno candle indicating sony by acy. Enter short positon within the range ofthe frst two candles after compton ofthe frst two candles. Apply aston lens hace i race unity Ie enn nee arn 15-20 nes oe ityxt “Toke profits when the trade reaches 1:2 risk reward ratio or when it sat previous day high. ‘Selup rues fora long trade are Just the oppose of te short setup rules. ‘This setup is conceptually sold trading idea. The gap up open shows that thee ba sigiicat change in sentiment at open but the black candles indicate that sales ae emerging at this leva and ther caing ilikely to drive prces lowe, because ofthe absence of tying support the lv. Ts stp forming recstance pts a double confirmation. ery sur ata 14932012 “The green dotted line's previous Cay high. The two candles in he black square forms the setup. Note the down move ‘after setup completion. Like setup - 1, thi aso forms in may veiatons, scroll through charts and find ou diferent ‘Variations and internalize the setup. Tic setup alco works 80% of the tie. If you Nad any queries, plaace use the comments section ‘The third setup in the series Market Open Out of previous day range. Tiss a powesul set to fade the 090 open. Terkel open ot of previous day rene of sees of posts we defined pen out cf range and discussed fst two ‘setups. Before proceeding to this setup, review the posts if the subjects discussed in those posts are not familiar. (Open out of previous day range mars a significant change n sentiment overnight after market open The prevallog sentiment &t market open may Conve ater market open of may fa as te aang activ cruoes ough the traiag tours. The ope out ofrarge setups take advantage of ths concept to ite Wades. Setup 1s corieation ‘ofthe open sentiment based trading sraogy ond Setup 2 flue ofthe open sentiment based tadig Svatey. ‘Setup 3 ao breakout flue bace tracing sategy. Fst analyse the cai chart and ently the market cute. whether ti onetime faming or bracketing, and searby es are neers The St sep dere! Deo. Sri chasis we othe setup wth tine Fame mites. penis ga oop, andre og ite candle nthe Mist wo candles. The gap szeissgnfiant or the open round recent exces. Market ont. {Sone time faming up for 23 o more doa racket tp or breakout from back. Mer open market ts into. ‘sideways trading for half an hour or more. Mast of the trading activity occurs near the high of the opening range. ee ee tes eras vee ea es An Sue en eee eae ‘Take profits when the trade reaches 1:2 risk reward ratio. ‘The tues for along ade are oppesite ofthe stort trade rues.Here isan example short trade_Refle picture below for market context. Markt profile chart i used instead ofthe ‘andl stick chart. The last profiles the day on which the setup formed. Prior to this day the market was bracketing, te bracket s marked with tive rectangle in chart fefr to the 2 minute cade chart below. The open i gap up wth a Sonicant gap size of 20 points. after a0 10 (ben mart trode sideways with no eniden upidown trend Red square in chart Laer test the High ote range fale and short envy was inte around the topo the cpesing range, see the red arrow in chart. Ths wasn 2 ‘smooth riding trade as it continued to trade sideways for hours after entry. However there & no evident up/down tend an the shor trede ste to held. This pe of prolonged Sdewaystradiog above previcus dy ih lexds to 2 Stucton James Daton calsong In he foe. Thesigicance of ts seuaton fat Dyers get appease sno {ew through upward move airgap up pes and when they Kqudate thet poston, a down move wil ene. rertualy the down move come We eherncon ‘nother example of a fon trade. Prieto this setup formation Nifty was onetime framing down for 3 days. The open ‘ange was broken down after 15 minutes of market open, but there is no folow through down move thereafter, The ‘lve up arrow stows lang trade.‘These examples are purposely chosen to show the derert variations ofthe setup. Famitanse wth this Sup by ‘examining chert ond internalise& before stating to trade with this Uadng Stategy. Once Kis interna, becomes e85ytoidentfy and expo is setup or good protts, “The concept behind this rading strategy 6 the key to understanding and Uadng tis setup. As the market tums nto rations after gap up open, it inciates that there is presence of responsive sellers and the intiaive beyers are losing ground. This srt of cap opens are caused by after market news release or due to intr market sentiments.