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Thursday, September 21, 2006

Viewer Mail - 092106

B.G. emailed me to ask why BWNG didn't work.

Looking at the chart, the first thing I notice is that the first bar is probably too wide range - I would worry that it made its entire move in that one bar.

B.G. entered on a break of the third bar high (30-minute chart). I understand the rationale - the third bar closed strong, it was a narrow-range, inside bar, and it closed near the top of the morning's range. But, it was below the OR high which means the standard disclaimer applies:

"as with any entry below/above a previous high/low (in the case of my charts, the opening range (OR) high/low), you need to watch for resistance/support as price approaches those levels. If it stalls, you want to exit. If it breaks through, the odds are good you will have a move to the corresponding Fibonacci extension."

The fourth bar rallied through the OR high, but the fifth bar was narrow-range (NRM), with an upper and lower tail ("doji"-like, indicating indecision). This was a pretty big red flag that the rally stopped, and I would have covered on a break of the fifth bar low. Had you done so, you would have made enough to cover commission.

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1 comment:

Brant said...


I love your blog... I especially love your commentaries on specific trades like this one. This is where I learn quite a bit.

I have a couple of quick questions. I went through your FAQ and things didn't seem that clear to me. I hear you talk about avoiding trades that have too wide of an opening range. What do you consider as too wide for an OR? Is there a mathematical formula for gauging this? Or is it just some type of percentage ((high - low) / low) that you are looking at for the OR?

Thanks again! Keep up the great info!