Monday, January 30, 2012

Opening range: 1Rev vs 1PB vs fBO


It is important to know the definitions of 1PB, 1Rev and fBO to correctly trade the opening range:


  • 1PB is the first pullback after a strong or successful trend attempt
  • 1Rev is a strong reversal after a weak or moderate trend attempt 
  • fBO is a failure to create a trend breakout of the opening range

If we look at b1 today, its clearly a trading range bar. There is no trend yet. Some traders will buy the low of b1 hoping for an fBO. However, this is dangerous since b2 can be a large trend bar that continues the downward move.

b2 attempted to break into a bear trend and failed. At this point, we have a fBO. However, its not tradable since the signal bar is weak and we would be forced to buy mid-range. Note that this is not a 1Rev, since only trends can reverse and there are no reversals within a trading range.

b3 is a trend bar, but since it did not breach the trading range, its not a successful BO. b3 is not a 1PB since there is no trend and its a bar of the wrong color in any case. If b3 was very high and a bear bar, you would be selling near the high of the trading range and you could argue its a 1PB even though b2 was a weak breakout bar.

b4,5 again is an fBO but the signal bar is a weak overlapped doji and is not worth trading. If a trading range is at least 4 points and the other end is at least 2 points away, often the signal will work for about half of it (1 point in this case), but often its just a distraction because a clearer setup is usually just a couple of bars away.

b6,7 is an inside bar and a LH after a LH and LL, so a possible trend. However, it would be a very shallow 1 legged pullback after a weak reversal bar b5. You don't really want to sell near the low of a trading range unless its at least a 2L pb.

b9,10 is a W reversal and since we have a weak down trend, this can be labeled a 1Rev. Since the reversal was not near HLC of prior day, its not an OR; therefore it is labeled XOD (extreme of the day).
Posted by at
Labels: , , , ,

7 comments:

  1. TL_traderJanuary 30, 2012 at 7:35 PM

    Thanks for the post Cad.

    I missed the A2 entry today. But I caught the XOD for a good trade and shorting the overshoot at b64 for a small gain. Today's prices made up an up-channel that is only $0.54 wide on the SPY making it very hard to trade. It was wrose during EST lunch hours. I now so agree with Cad that we should all practice-make-perfect with our entries, at lease we should start with the A2's.

    ReplyDelete
  2. CarmenJanuary 31, 2012 at 12:54 AM

    Hi Cadaver,

    Let's say todays opening range would be near of LOY. Can be b5 considered as fBO and test of LOY and be taken for swing trade?

    In second case let's say opening range and large gap will be as today but it will be bull gap. Can be this situation considered as a second attempt to close gap (and entry for swing trade) or gap is so large that is no sense talk about closing gap?

    If b9 is W, can be b13 W1P or it would be buying just in the middle of opening range?

    Thank you very much for your reply.

    ReplyDelete
    Replies
    1. cadaverJanuary 31, 2012 at 7:01 AM

      b5 would be 2nd attempt to reverse LOY and therefore an OR type of 1Rev. Its success still depends on the quality of the signal bar but weak signal bars often work at supports like LOY.

      When the gap is a large bull gap, b5 could signal the failed second attempt to close the gap but on a weak signal bar, I wouldnt buy it unless its close to some support such as HOY. Signal bar quality correlates to success of trade.

      b13 is most certainly W1P. Once you have a W reversal, you can assume you are in a trend and the market will at least seek the other end of the opening range. An overlapped signal implies possible pullback, but its an acceptable signal.

      Delete
    2. CarmenFebruary 1, 2012 at 4:15 AM

      I have just been watching your video from 22/1/2011 "Trading the first reversal of the day" and there you bought in small range above doji 1tfBO without any support such as HOY or EMA.

      If today's opening range would be in small bull gap as in video, it would be ok buy or there is something that I am missing?

      Please do not take my questions some offensive I just wanna clarity for me as much as posible.

      Thank you very much for your reply.

      Delete
    3. cadaverFebruary 1, 2012 at 6:46 AM

      In the video, b2 was an L1 variant and b3 was a fL2 making it a decent buy. But its perfectly OK to pass on that trade and take the reversal at b7

      Delete
  3. AnonymousJanuary 31, 2012 at 5:47 PM

    I passed on the trade but b21 sure looks like an a2. what am I missing? thank you for the blog, it's a wonderful resource.

    ReplyDelete
  4. UnknownMarch 11, 2014 at 7:47 AM

    Hi Cadaver,

    Could you please help me with the following? It will help me with clarifying my understanding. Thanks in advance.

    Both the links have same chart - My question is if the price failing at EMA is 1rev or fBO. I identified this as a trading range day as price went below opening bar low and failed. Also once price moved up and again gave a fBO, I chose to wait for 2E, but OL did not give me conviction to pull the trigger.

    http://tinypic.com/r/jueq2s/8

    http://i60.tinypic.com/jueq2s.png

    ReplyDelete

Subscribe to: Post Comments (Atom)