Wednesday, May 27, 2009

Six Ways to Identify a Range Market

Thus far this morning, we've seen a classic range bound trade. Here are the things we look for in identifying a range day:

* Price oscillating around the open and/or the volume-weighted average price (red line);

* NYSE TICK oscillating around the zero line;

* Relative balance between volume transacted at the market bid vs. offer (bottom histogram);

* Mixed performance of stocks from their open (as noted in Twitter posts);

* Mixed behavior of market sectors from their open;

* Muted relative volume (i.e., lower than average volume traded).

When I see a narrow overnight range, I like to assume range behavior into the market open unless the market shows me otherwise. Staying patient during a range trade can lead to nice "reversion" trades at the range extremes, but can also help traders remain vigilant for the eventual breakout trade.


Kyle said...

Hey Brett. You mentioned that when the futures have a narrow overnight range that you expect a tight range for a good portion of the next day session. Have you ever done any backtested studies of the relation between the overnight and following day session ranges at all?

MACDOW said...

A very good topic for today, so far its been a Zzzzzzzzzzzzzzzz type of day. Like they used to say when I was in the military - Hurry up and wait! :)

Thanks for all the great posts Dr brett.


Curtis said...

The day trader watches the TICK intently to see what the day will bring.

The master trader moves the TICK before the day trader's eyes.

The doctor observes the patient to understand the disease. The shaman takes on the disease to understand the patient.

No, in all honesty this is a great stuff! If I could combine my ability to predict the market with the intraday and overnight structures then that could complete the puzzle.