Will Be Back in 2012

My wife and I are going on a 10 day cruise in the Caribbean.  Not sure how 2011 went by so quickly.  Everyone have a Happy New Year and I'll be back posting in January.

TLT

ID/NR4 Bars and Thinkscript

Linda Bradford-Raschke, Laurence Connors, Tony Crabel and many other professional traders have referenced narrow range bars as part of there trading setup arsenal.  LBR likes the ID/NR4 which stands for Inside Day Narrowest Range in 4 days.  That means the high and low of the bar have to be within the prior bar (an inside day) and the overall range itself has to be the narrowest in the last 4 bars.

Referenced in many books authored by the above mentioned traders, ID/NR4 and NR4 bars provide a low risk high reward trade setup.  The setup generally involves trading the break out above or below the ID/NR4 bar and placing a stop at the other side.  Then trail a stop for another bar or two.  LBR stresses that in the event your initial stop gets hit, you should stop and reverse so that you are now in the trade in the other direction.  She states that this is important because many of the moves can be false break outs but the move in the opposite direction can be very powerful after a false break out.  Regardless, these setups do allow for very tight stops and can provide some very good short term edges.  Adding some additional research such as current trend direction if any (Crabel does a lot of this research) or monitoring an opening range break out after a NR4 day (Crabel does this as well) or using some volume analysis can all help you filter NR4 or ID/NR4 bars for even higher probability trades.

Here's a chart, note the blue dots above bars indicate an ID/NR4 bar:

And for those of you on ThinkorSwim, here is the thinkscript:

###DELETE THIS ROW WHEN PASTING INTO TOS###


# ID/NR4 Bars
#
def range = high – low;
def na=double.nan;

def plotter=high+range*0.3;

def longvol = volatilityStdDev(100);
def shortvol = volatilityStdDev(6);

def volratio = shortvol/longvol;

def isnr4 = (range <= range[1] and range <= range[2] and range <= range[3] and range and high<high[1] and low>low[1]);

plot lowvol = if volratio<.5 and isnr4 then low-.0005 else double.nan;

lowvol.SetDefaultColor(color.violet);
lowvol.setstyle(curve.points);
lowvol.setlineWeight(3);

plot nr4 = if isnr4 then plotter else na;

nr4.SetDefaultColor(Color.yellow);
nr4.setstyle(curve.points);
nr4.setlineWeight(3);

###DELETE THIS ROW WHEN PASTING INTO TOS###

This code was adopted from a code for NR7 bars written by ReadtheProspectus at his blog with the same name.  If you like thinkscript it would be well worth it to spend some time at his blog.

Happy Holidays!

TLT

Covered My Eur/Usd Short

Over the past week, I have been managing one position...a short Eur/Usd.  It turned out to be a pretty decent trade that probably has more profit potential...however, booking profits seemed prudent right now.  Total, the trade booked about 400 pips which is a pretty big winner for my swing trading.  100-200 pips is the standard size for winners. 

The trade was a good one but I really wanted to blog about taking off the trade.  For me, booking profits is actually one of the hardest aspects of trading.  I have found that there are 2 methods that work for me.  A trailing stop or a profit target.  Quite often I use both.  For this trade, my take profit point was 400 pips.  It was tempting to continue to trail my stops but there is a high possibility of seeing a bounce.  3 day one direction moves usually get corrected.  Furthermore, we had a fed day yesterday and it's options expiration week..both are events that can move the equity markets and in turn put pressure on the euro.  Sometimes booking profits and sitting out for a bit is the best thing to do..as long as you fully accept that the trade "may" have been much more profitable had to left it on.

So what's the game plan?  I do think the Euro could fall quite a bit farther, it will just be a matter of patiently waiting for a pull back and an entry signal to put the trade back on.  This is likely a very crowded position and a good rally may shake out a bunch of the shorts and provide some fresh fire power for a move lower.  We'll see.


TLT