Saturday, January 8, 2011

Bias Change through Pivot

Bias' can change, and when they do it is usually powerful, especially through pivots.  Remember, if the market does not react to what you see don't hang around too long.  Always know where you will get out if you determine you are incorrect about your assumptions. 

So let's examine, opening range are the green lines, blue lines are pivot range (meat of the market) from prior month.  Market opens down for the month and creates a negative bias because market holds below opening range for one day (half of the value of opening range in this case 1 day because I use a 2 day opening range).  So this stock really should of collapsed further but it didn't.  Strong buyers and or short covering caused this stock to explode.

Bias changed, had many people caught , and broke opening range held above and created long bias.  The fact that it was through pivot range adds to the strength of this move.  Also, reversal through pivots are very strong, coupled with 14,30,50 day Moving Averages are starting to point up.  There should be no reason why this does not continue. 

Where do I get out if I am wrong, just below pivot range.  That is price stop.  My time stop is 2 days, if this does not continue in the up direction I'm out.  Why?  Because if everyone can buy where I am buying then how good of a trade could this be..."Next"

Same concept here, in ARMH: 

Intraday first 20 minutes is opening range.  Bias down, then late day move extremely bullish, followed by gap up.  Lots of people caught short cover, and buying.  I bought exactly where it says buy.

I always use price AND time stops.


  1. I've been looking at tons of potential opportunities at just to get a rough idea of ideal breaks.

    So ideally we are looking for charts who's pivot lines are within or close to the opening range right? I found a few of these, and some of them had huge breakouts on Friday...this would be the time to place the bet? ;)

    Also, my cousin and I are attempting to use excel and the TWS API to automate some of the screening.

    Here's some of our thoughts:

    Since the blue lines represent the "meat" of the market from the previous month, wouldnt ideally we like to have the "mode" of the trades of the previous month? This would be what price traded the most. Otherwise we thought about taking the high and low for each day and then running an average. We havent figured out exactly where to pull a list of trades of the month yet.

    The opening range of the month seems easy enough, just pull in the high and low from the first two days.

    After that we would like excel to signal us whenever a stocks open, high, low, and close were all outside of that opening high low range.

    After that it seems we could just fill it with tons of stocks, and maybe cut some of the time down.

    Maybe something like this already exists?

    We are working on it this weekend, let me know if you have anymore thoughts, or maybe corrections on our thinking.


  2. To be honest Josh, I just follow Mark Fisher's strategy in pit trading and apply it to a month time frame. The strategy outlined in this blog is basically how many nymex energy traders make sense of markets. Their strategy made sense to me and I applied it.

    I just expanded the time frame. For instance you can use the first two weeks of January or July to construct an opening range. See where the pivot falls and look to see what stock/commodity etc. lines up near the pivot and see which way the market breaks.

    In essence, this is an opening range break out strategy, no more, no less. Try not to over think it.

    The most important aspect is the, opening range which determines bias, and the second aspect is the pivot range. You structure trades based on the way the market breaks relative to the opening range and pivot range.

    I wish I read the book before I started. My suggestion is read the book 5 times, and forget what you already know. I spent a year trying to figure out trading and all the B.S. conclusions I drew from markets were nonsense. This strategy made sense and I through every thing else out the window...It's not for everyone but it works for me. And that's why I write this blog, so I don't deviate from something that works.

    Good luck and let me know if you have any questions...but read the book a couple of times.

  3. Sounds good, what I like about this so far IS the simplicity. I'm new to this but some things that resonate and make so much sense to me are: trade what you see, not what you believe and that essentially supply and demand is what moves markets when you get down to it. We are just trying to automate some of the screening process so we are notified when a range is broken and a bias is shown. We've made lots of progress so far. Ideally we'd just like to hit a few keys and have excel light up like a Christmas tree showing us which ranges have been broken and which pivot ranges are either within, or close to the range. I did some screening on my own last night and found a few stocks that seem to me to fit the criteria: DO, VRX, ELN, MCO, BYD, TJX, OPEN, BA, ACOR, TSL, LMT, HPQ, GNW, PAYX, RAD, WU, TI

    I'm definitely not trying to bother you or hijack your blog or anything, and no need to pick stocks for me, just thought you might be interested.

    Have a good one

  4. HOLY SMOKES...You got it Bro!

    Those examples are perfect! In fact I was in HPQ, got out recently with profit (not sure why? hahah)

    Another odd characteristic of the system is narrow pivots emphasize larger moves. For instance look at this months pivot on HPQ and compare to last months...often times if you have a narrower pivot relative to the month before you will probably have a larger than normal move the month of the narrow pivot, hence HPQ, LMT etc.

    Shoot me an email if you have a moment...I would like to know how you and your cousin are automating the screening process..

    You all might want to incorporate in your system a way to screen for narrow pivots...

    I would love to know how you are doing this.

    Shoot me an email!