Thu 10 Apr 2008
Test Open in the ES
Posted by ray under Written Plan
Ryan asked whether the opening on April 8 was a test-open. In my view it was not.
A test-open is second only to the drive-open in terms of exhibiting conviction. In the case of the test-open, the market is unable to find activity in one direction, reverses and finds activity in the other direction. There are a number of indicators I use to help me assess if an open is a test-open.
- How far did the market move in the non-dominant direction? Ideally, it should move 33% (or less. I prefer to see no more than 25%) of the ATR.
- In the AB period, I want to see at least 40% ATR in the dominant direction. The reason is, a test-open usually is a sign of a rotational market. If the AB period produces less than 40% ATR, it is unlikely that the Initial Balance will achieve an IB with at least 50% ATR i.e. by the end of the ‘C’ period. The smallest IB range for a rotational day is the Normal Variation Day (about 40% to 50% ATR)
- Finally, in the AB period, I want to see a Delta difference of at least 10k.
Armed with the above, let’s examine the open of April 8 & 9
April 8: The current ATR is 27 points +12/-6. So the minimum 60-minute range would be 10.5 points ([27-6]/2).
- The market moved 1 point down and then rallied: Pass
- The 60-minute range was 1370 - 1263.5 = 6.5: Failed
- The 60 minute Delta was +427: Failed
April 9:
- The market rallied 0.50 points and then dropped: Passed
- The 60-minute range was 1370.5 - 1361.5 = 9: Marginal pass (greater than 40%, but less than 50%).
- The 60-minute Delta was 13171 - 2816 = 10, 355: Passed
On the balance of probabilities, I leaned to April 9 being a test-open and April 8 being ‘wishy-washy’ i.e. one that would mark non-trend day.
Figure 1 shows the Delta for April 8 and Figure 2 the Delta for April 9.
FIGURE Delta April 8
Figure 2 Delta April 9
April 10th, 2008 at 3:24 pm
Dear Ray,I hope your enjoying Mumbai and a curry or two.Please excuse my ignorance of market profile but may i ask for a definition of rotational market and rotational day. Also i thought the observation of non dominant direction expressed as a percentage of ATR is very interesting are those numbers statistically based ie the 33%.Thankyou for your time,best wishes cheers baz
April 10th, 2008 at 7:09 pm
Ray,
Thank you for all the excellent posts on MP - I’m learning a lot!
How do you determine the correlation between IB range (as % of ATR) and day type? I’ve read Mind over Markets many times and can’t find any direct reference to the topic. There is an indirect reference on page 19 of the CBOT Market Profile Study Guide which relates day type with long or short term activity. For example, the CBOT Guide suggests that on a NORMAL day 80% of the volume comes from short-term participants and 20% comes from long term participants. A NEUTRAL day consists of 70% short-term and 30% long-term, etc.
And how would you classify the opening of April 8th - Open-Rejection-Reverse?
Bob
April 10th, 2008 at 9:45 pm
Hi Baz
Thanks for your comments.
A rotational day is a sidweways market that goes from the top of the range to its bottom.
A rotational market is one where the rotation is greater than one day e.g. in the 18-d.