We are introducing a set of trading systems called The Art of Chart Trader’s Toolbox. The Trader’s Toolbox is collection of trading systems and indicators that provide perspective on high quality, profitable trading setups for day traders and swing traders. The objective of these tools is to help traders identify profitable setups while managing risk.
Each systems has a specific purpose to support selecting a quality setup. Very often these tools can be used together to improve the quality of your trading. Here are the five tools that we are starting with:
STAN’S OPENING RANGE SYSTEM
Based on the work of Mark Fisher and his book The Logical Trader, Stan’s Opening Range System is a trading system that identifies the setup and the type of open for the day. Based on this information, a trader is provided critical information as to the type of trade that may be presenting itself for day trading purposes. This is intended to support higher quality day trading entries. The signals provided include:
Outside Day – Bias up or Bias down – this signal is based on the previous day’s price action which helps determine market direction the next trading day. This has a 70% hit rate is a a reliable signal.
Inside Day – At the close, this signal tells you the odds of expansion the next day are greater than average and a trend day is more likely.
NR7 Day – This signal is important at the close of the trading day. When seen it means that the next day is 70% likely to be an expansion or trend day.
Bull or Bear Trap – This signal indicates that the open is a Bull trap or Bear trap. When there is a certain expansion in range with in certain time parameters, a Bull Trap is signaled which means a reversal is imminent.
Smash Day – This is a Larry William’s signal which indicates the open was smashed by large volume either up or down and a reversal is highly likely.
Oops Signal – Another Larry signal used primarily on commodities that indicates a 70% chance the gap up or down on the open is about to reverse. Very useful on Live Cattle.
Included in this system are 12 specific pivot points that identify support and resistance for each trading day. The system helps to identify when you are in a two sided day or a trend day. When used with the signals above, the system identifies the appropriate price levels to trade against given the current days price action. The pivots are identified on the screen as colored lines which set up trading ranges. The ranges identified are as follows:
– Upper and Lower Levels (Light Green and Light Red) – this is the tightest range for a two sided day.
– High and Low Levels (Light Green and Light Red) – A favorite level for morning higher or morning lows that reverse, especially when you see a smash open or a bull or bear trap signal.
– High 1 and Low 1 (Dark Green and Dark Red) – This is the boundary for trend days. Two sided days usually end here. Any cross and conversion across these levels usually results in a trend day.
– High 2 and Low 2 (Dark Green and Dark Red) – The first goal on a trend day is this level. Often High 1 and Low 1 are back tested before the next move occurs.
– Trend High 1 and 2 and Trend Low 1 and 2 (Pink) – These levels are for trend days. They are intended as areas to take profit. Reversal often occur at these levels on a trend days during the last hour of trading.
– Previous Close (BLUE)- very important level that often defines support and resistance at the start of the trading day. A must have in any day trading system
When combined with the Range Expansion Indicator below, these tools together are deadly. Please see the example below for more information.
Stan’s Range Expansion Indicator
This trading indicator is based on Tom Demark’s work. The range expansion indicator provides buy and sell signals based on range expansion and contraction. The signal appears in the upper left hand corner of the study. It is very valuable for both swing trading and day trading. Signals include Sell Advanced, Sell, Buy and Buy Advanced. The Advanced signals are early buy and sell signals. This is very handy with the Stan’s Opening Range Program and helps to verify the potential for a reversal against a pivot.
Stan’s Better Volume Indicator
This is Stan’s adaptation of the Better Volume Indicator. Stan’s Better Volume Indicator uses a combination of bid/ask volume and range to identify different types of bars on a tick chart. These bars are important in day trading to understand what professional traders are trading.
1. Market tops are characterized by Volume Climax Up bars, High Volume Churn and Low
Volume Up bars.
2. Market bottoms are characterized by Volume Climax Down bars, High Volume Churn
and Low Volume Down bars.
3. Pullbacks, in either up or down trends, are similar to market topping or bottoming
patterns, but shorter in duration and with simpler volume patterns.
Volume is the most underrated market variable used in technical analysis. But if
you know how to analyze and interpret it, you’ll be able to see market turning points
develop and anticipate pullbacks and trend changes.
Color Legend – To see this legend in the Study, change Legend = YES under settings.
Yellow – Low volume for the size of the bar – Amateurs at work
White – Climax down
Blue -Climax up
Red – Churn – Pros buying at lows or unloading at highs
Magenta – Climax Churn – Pros taking profits at highs or lows
Gray – Normal (default) Bar
The Better Volume indicator also paints your price bars so you can see the coloring
on the price bars themselves.
Stan’s $Tick Indicator
This indicator tracks the tick index on the NYSE and compares the number of stocks that are rising to the number of stocks that are falling on the New York Stock Exchange. The index measures stocks making an uptick and subtracts stocks making a down tick. This is useful in day trading to identify tape momentum and identifying program trading buy and sell programs.
Coming soon – Jack’s RSI Buy and Sell Signal Indicator
As the name indicates, the RSI Buy and Sell signals that we use on the Art of Chart are being included as an indicator. This is in development and will be in Beta testing in the coming weeks and is part of the subscription to The Art of Chart Trader’s Toolbox.
The Subscription Service for The Art of Chart Trader’s Toolbox is now available. A subscription includes a 14 day free trial and includes all instruments and indicators that we cover and future indicators and instruments in development. We are now working on a Ninja Indicators which we hope to have finished in the coming months. Please post any questions you have to this blog. To subscribe to The Art of Chart Trader’s Toolbox, Click Here.
An Example of How Stan’s Opening Range System Works.
Risk management is done using this system through the 3P system. When you have an entry at a level, take 1/3 off at the next level and place your stop to even. You may have your own system for managing risk, we suggest you take a small profit as soon as possible and then manage legging out of the trade you see fit.
The example below is a good illustration of how the system works. On Tuesday May 29th, trading YM, the mini Dow Jones Industrial Future, 30 minutes into the trading day, the system produced a Bull Trap signal. This occurred at the Upper Level which is the light green line on the chart. An entry there at 24600 with the Bull Trap Signal and Stan’s Range Expansion Indicator issued a sell signal (the small triangles) and there was RSI divergence and a double top. These signals together helps to support a trader in determining if the price action warrants an entry. This is FAR BETTER than just watching price action naked and guessing. So we have the Range Indicator indicating overbought with a sell signal, we have the system producing a Bull trap signal AND we have resistance at the Upper Level and a double top with RSI divergence. A very nice setup.
Taking 1/3 in profit at the next level below at 24500 is a standard action and put your stop at even. As you can see, the Bull Trap played out into a trend day and the market proceeded to travel to Trend Low 1 ( the pink line) which is a typical target at the end of a trend day. This level and also Trend Low 2 are good reversal levels during the last hour of trading. The low of the day was 24227 against Trend low 1 which if traded well would have yielded a nice profit for the day.
At the end of a trend day, and against one of the trend low levels, and with RSI positive divergence, you now have another nice setup for a long which last week would have been a nice entry.
There will be more examples posted each week to demonstrate how to use this system. We include training in the use of these indicators as part of The Art of Chart Academy. Please click here to learn more about the Academy.
Try out our 14 day test drive of the Traders Toolbox. We will be upgrading and adding new tools to this service in the coming weeks. Currently these tools work on Think or Swim. We will be adding Ninja versions in the coming weeks.