Friday, February 10, 2012

Narrow range days distort your perception

Narrow range days are typically terrible for me and force a lot of errors. I have learned to cope by sitting out most of the day. If the first two hours have a range of 6 points or less, its best to be very cautious and only scalp every trade. The reason is simple. The tight range will act as a magnet and will cause any breakout to fall back into the range.

One of the hard things about trading a narrow range day is that it distorts your perception. For example, b37 was a possible BP trade with b29 being a possible BO above HOD. If the range was wider, it would be fairly obvious to trade only shorts near the upper part of the range and b37 would be a poor decision. Similarly, the second fBO at b43 may have broken into a trend and b66 is a possible A2 but if the range was wider, it would be obvious that b50-65 was a horizontal flag and a possible FF.

Tiny bars, shallow pullbacks, poor signal bars distort your perception and force many incorrect reads of patterns and signals and the narrowness of the range reduce profit potential and probability of every trade.

4 comments:

  1. Hi cadaver,

    could be b5 considered as fBO with possible target +2 depending only on context b1-b4?

    Thank you very much for your reply.

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    1. b5 is a very good fBO setup. I just could not read it in time and was expecting a 1PB long instead.

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  2. I'd like to know more about your "5 tick on gap open" trade." I took it Friday as well but to no avail. Is this a low probability/high reward (trend from open) trade? Thanks.

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    1. Yes. This actually is a low probability/high reward trade and its usually ideal during large bars on the daily chart such as summer of 2011. When the PA on the daily chart is small, its usually not worth taking such trades.

      Note that this is not one of my proven trades on the setup chart.

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