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Initial Balance and Opening Range considerations


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Initial Balance and Opening Range considerations

  #1 (permalink)
TrippTraders
Ithaca, NY USA
 
Posts: 3 since Dec 2022
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Hi All!

I've been trading for a long time (Dec 1999), all electronic, and this question has always gnawed at me.

How strict time-wise do you consider the OPENING RANGE, and INITIAL BALANCE to be?

For example, via strict time-keeping, you will remember that, as a recent example, this Monday (Feb 6, 2023) the MYM / YM contract looked like the attached image.

Green represents the range of the OPENING RANGE , via strict time-keeping, and...

Purple represents the range of the INITIAL BALANCE, also via strict time-keeping, but with an added lower extension that includes the downward movement of price until it reversed and headed back up.

To clarify, the question is, do you include any price movement beyond the strict OPENING RANGE 9:35 ET cut-off, or beyond the strict Initial Balance 10:30 ET cut-off?

Or do you only consider what happened with price within the strict time parameters?

In the attached example, the OPENING RANGE is clear, because, as is often the case, price reversed within the first 5 minutes and left a clear opening range, but what if price continued up for another 1 or 2 minutes and then reversed at, say, 9:37 ET... would you include that price movement?

As a better example, though, and more importantly, to me anyway, going by strict time constraints, the INITIAL BALANCE as of 10:30 ET was a temporary low of 33747, at 10:17 ET, with a range of 159, even though price was clearly continuing down as of 10:30 ET. But price did continue down and finally reversed at 10:34, making an extended Initial Balance worth another 30 ticks/points at a new low of 33717 for a new IB total of 189 points. Which would YOU use? The strict price by the clock or, what I would consider to be logical, the end of that price movement? Obviously, the 10:34 reversal is the head of an inverted head and shoulders, and seems like it would clearly be a more significant S/R level later, for what that's worth.

What would they have done in the pits? (used to use just the first :30, I know)
What would modern-day electronic bigger players see?

Thanks for all of your input and expertise!
–Tripp

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  #2 (permalink)
 
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 Rovo27 
Austin + TX/United States
 
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Hi, I am an algorithmic trader and although I do not currently use the OR or IB, I have developed strategies in the past incorporating them for both myself and for others. I'm happy to share my personal opinion.

I think you have to think about it in terms of probabilities. As you probably know, the probability that the market has either determined the high or low of the day increases with each bar printed during the day. So the further you extend the OR or IB time constraints, the more likely that you will have encountered the high or low of the day, which is significant in terms of S/R and determining market direction for the rest of the day.
This is one aspect that should be considered.

More importantly though, I believe that most electronic players will determine the OR and IB strictly in increments of 5 minutes. This is to provide consistency over a large sample size. If it was determined by price extensions, there would be too many discretionary factors that would have to be implemented in the code (what counts as a reversal and how long should the exception be made).

I do believe that the specific time constraint of the OR and IB is instrument dependent. The optimal time frame would be determined by backtesting the algorithm that incorporates the OR/IB.

In summary, I consider the time constraints of the OR or IB to be very strict in terms of 5 minute increments determining the beginning and end, but whether the opening range should be 9:30-9:35 or 9:30-9:45 is instrument dependent.

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  #3 (permalink)
TrippTraders
Ithaca, NY USA
 
Posts: 3 since Dec 2022
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Fascinating!

Incredible insight.

This might be one more reason why I like trading the futures contracts based on the Dow Jones Industrial Index as an underlying... NASDAQ being the alternative on a particularly slow day. S&P is of no interest.

I'm currently writing a book.
I'm working on launching a live-trading YouTube channel and mentorship.
It covers everything imaginable that affects the human condition as these factors serve to assist or destroy the common man (or woman's) ability to conservatively but rapidly build wealth by trading highly leveraged instruments. A mouthful of BS until you watch a halfway decent trader like myself let compounding do it's thing 5 days a week, month after month.

Any further insight would be greatly appreciated.

Thanks so much!

TrippTrader

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  #4 (permalink)
 
Rovo27's Avatar
 Rovo27 
Austin + TX/United States
 
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TrippTraders View Post
Fascinating!



Incredible insight.



This might be one more reason why I like trading the futures contracts based on the Dow Jones Industrial Index as an underlying... NASDAQ being the alternative on a particularly slow day. S&P is of no interest.



I'm currently writing a book.

I'm working on launching a live-trading YouTube channel and mentorship.

It covers everything imaginable that affects the human condition as these factors serve to assist or destroy the common man (or woman's) ability to conservatively but rapidly build wealth by trading highly leveraged instruments. A mouthful of BS until you watch a halfway decent trader like myself let compounding do it's thing 5 days a week, month after month.



Any further insight would be greatly appreciated.



Thanks so much!



TrippTrader



Yes, YM seems to be a common preference of experienced traders. From my experience ES provides greater accuracy in price movements but tends to trend less strongly, range more, and move slower than YM or NQ.

NQ provides stronger trends but comes with the risk of rapid onset of high volatility. YM is a middle ground between the two.

Due to the higher volatility of NQ in the opening session, it tends to establish a wider range in the first 15 minutes. That’s why I prefer 9:30-9:45 EST as the relevant time constraints for initial balance/opening range. I don’t use both as they serve the same purpose for me (determining S/R and providing an initial range for volume rotation).

I do better in fully algorithmic trading but I’m breakeven at best when it comes to discretionary trading. Although I believe there is much greater profit potential in successful discretionary trading than algorithmic trading.

I would definitely be interested in reading your book. It sounds similar to “Trading in the Zone” if you’ve read that before. Let me know once it’s ready!


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  #5 (permalink)
 
bobwest's Avatar
 bobwest 
Western Florida
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TrippTraders View Post
Fascinating!

Incredible insight.

This might be one more reason why I like trading the futures contracts based on the Dow Jones Industrial Index as an underlying... NASDAQ being the alternative on a particularly slow day. S&P is of no interest.

I'm currently writing a book.
I'm working on launching a live-trading YouTube channel and mentorship.
It covers everything imaginable that affects the human condition as these factors serve to assist or destroy the common man (or woman's) ability to conservatively but rapidly build wealth by trading highly leveraged instruments. A mouthful of BS until you watch a halfway decent trader like myself let compounding do it's thing 5 days a week, month after month.

Any further insight would be greatly appreciated.

Thanks so much!

TrippTrader

Hi @TrippTraders,

I am happy that you are doing well. However, with regard to your book, your YouTube trading channel and your mentorship, I need to make sure you are aware of the nexusfi.com vendor policy. Quoting from the Terms and Conditions:

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Essentially, if someone has any kind of service or product, they may not mention it on nexusfi.com or in any way use nexusfi.com to appeal to possible customers. Also, we will require them to let us know, and to give us the name of the business, so we can flag their account as a vendor account. This is to alert other members of the fact that they may have an interest in seeking customers. If they actually do anything to promote their business, they will face a ban.

We have a lot of vendors who post here, and since they often have a lot of worthwhile experience, they are welcome.... so long as they are not doing anything to sell their services or products. (There are exceptions for site sponsors, who have their own rules they abide by.)

You have not done anything wrong and I don't mean to sound like you have. I just wanted to make sure that you understood what the policy is, so you will know in the future if it ever becomes relevant.

Thanks.

Bob.

When one door closes, another opens.
-- Cervantes, Don Quixote
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  #6 (permalink)
TrippTraders
Ithaca, NY USA
 
Posts: 3 since Dec 2022
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Thanks.
Sorry.

Not at all a promotion.
It's a long way off.
Just having a conversation.

Won't happen again.

Peace.

–Tripp

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Last Updated on February 9, 2023


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