Playing Inside Days

[Soultrader 12]

Do any of you pay attention to inside days and have strategies to play them?

 

I havent take a look at them closely but I was putting some thought into it and decided to take a look. Perhaps we can add our insights to develop a strategy that we can trade off independently. (each trader should have a method that fits them)

 

To me playing inside days reminds me of Raul's morning breeze strategy. Basically entering in the direction of the breakout from the previous days high or low. What I have noticed is that anytime price breaks out of the previous days range (assuming the previous day was an inside day) the markets tend to go in that direction for a good amount of points. (dont ask me what good amount is.. I have not backtested any of this)

 

I want to look at some examples of the most recent inside days. Feb. 28 and March 2nd was an inside day.

 

 

 

The strategy I have in mind is identical to the Morning Breeze. Play the breakout of the range. The chart below shows the break of the low from the 28th. Price declines for approximately 100pts before reversing.

 

 

Now lets take a look at March 5th, the day after the inside day on March 2nd. The first arrow shows a fakeout when breaking the low. Would the trade been a loss? Im not sure.. since price did decline for 24pts before reversing. Depending on whether you scale out or move stop.. this trade may have been break even or even profitable. The second arrow shows a valid breakout causing price to decline 60pts.

 

 

 

Now I had to go back to January 23rd to find another inside day. Let's take a look.

 

 

Below is a chart for January 24th, the day after the inside day. The first arrow points to the opening drive up. We have a pullback that violates the previous days high by about 12 ticks then reverses for a nice trend day.

 

 

 

Lets take a look at one final example of an inside day on December 26, 2006.

 

 

 

The chart below shows price action from Dec. 27th, 2006, day after the inside day. Price gaps up and never looks back. How interesting.

 

 

 

The following study is based on a small sample size. But I find this extremely interesting. Perhaps it is worth taking a look and devise strategies or be aware of inside days. Inside days do not occur often but when they do perhaps traders can take advantage of this.

 

All thoughts and insights are welcome.

[keymoo 10]

Very interesting soul. I know that Carter looks at this stuff and he also pays a lot of attention to the overnight highs/lows for breakout strategies. He said in his room that present market conditions are great for breakout plays as the ranges are wide and the momentum strong. They tend not to work in quiet markets such as the first two months of this year. I haven't tested it out for myself.

[Soultrader 12]

Yep With volatile this good and momentum steady... all we need to do is climb on board and ride it out. Of course this is a dangerous habit to get used to. First 2 months on YM was hell if you ask me... its paradise now compared to what we have had the past few months.

[TinGull 10]

I must say... I digg

[TinGull 10]

So....something else I'm noticing Soul...which is pretty much the awesomest thing ever...Look at the 30 minute charts. When you see an inside bar and play the breakout of that bar...fan-freakin-tastic!

 

As I was writing this post...we had one. Broke at 144 and shot up to 163 in a matter of a minute or so. Very quick. Most all give up at least 20 points on a break of 1 tick above the high or low of that inside bar. I haven't looked at the inside motion of the 30 min to see about stop placements yet...but this is very interesting. See the attached chart.

[keymoo 10]

Nice work Tin!

[walterw 10]

Thats the beauty of technicall analisis... something that works on one speed universe may perfectly work on a smaller speed universe.... Tin : I would like to hear how you develop on does stop placements... with that being aded you would have a quite decent aproach... any delta factor to this idea ? cheers Walter.

[TinGull 10]

No delta factor yet...and I'll keep you posted on stop placement. Keeping an eye on where pivots are, though...helps determine some things for me.

[Soultrader 12]

Nice find Tingull. I may have to employ this into my strategy. Very nice...

 

Keep this thread alive guys! I think we are up to something here.

[TinGull 10]

Notice here...buying the break of the inside candle's high with a stop 1 tick below the low of that candle (26 point stop) has now resulted in 60 points profit.

[Soultrader 12]

Im going to be looking into playing these breaks better with a smaller stop. One idea I have in mind is to take into account of the actual breakout point. Where did it occur? Today's high? Previous day high? VAH? That being said, we can enter on a pullback. If the pullback fails we now have a price rejection and can hold ourselves back from entering the trade.

[TinGull 10]

Yea. Todays was about 4 points from VAH, hit VAH and bounced back down a few...then shot back up. If the pattern is to fail, it seems to fail when it passes through the other extreme of that inside candle. Seeing it pullback from VAH and then climb again is a good sign for that breakout. I agree...something else needs to be in place to get the risk a little more manageable.

[walterw 10]

I believe as you mentioned previously (Tin) stops should be timed with a smaller time frame...