AT: How do you quantify a "big bar?"
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LBR: You can determine the threshold of significance yourself,
depending on how aggressive you want to be — whether you
compare it to the past five opening 15-minute bars or the past
20. You can quantify this type of thing a zillion different ways
— you can use a percentage function, or make a comparison
relative to the previous n bars, just like a volatility breakout
So, we can scan our database and find the stocks that had the
largest 15-minute bars relative to the 15-minute bars of the past
two weeks. (She pulls up a list of stocks using a program called
Insight.) There were a lot of Naz shares. If I were trading stocks,
this list has the ones I'd want to go with.
Then you can add volume: Which of those stocks have had
a significant increase in volume in the first 15 minutes relative
to the past two weeks? That's an extremely significant little
AT: Does the placement of the close in the preceding bar
have any implications for a trending move the next day — if
it closed extremely high or low, for example?
LBR: I don't care that much about a day that closed on its high
or low. I'm more interested in how the market behaves after the
first 30 minutes of trading. A lot of the pension funds and institutions tend to stand back a little in the first 30 minutes and
watch the market settle in to get some confirmation.
The other things we look for in terms of a higher trending
day include a volume increase — which we don't have today,
but we have to keep in mind today is a Monday, usually a
lighter-than-normal volume day.
Then, is there good leadership — are IBM, Microsoft, Intel,
GE looking good? Next, I want to see a degree of trendiness
between say, 10 and 10:30 or 10:45 a.m. I want to see a steady
pattern of higher highs and higher lows after 10 o'clock. If I see
that pattern I know it will appear in the afternoon, too.
The last and most important thing is that I want to see trend
in the market breadth — the difference between advancing
issues and declining issues. (She pulls up a screen showing the
TICK indicator, which is the difference between the number of NYSE
stocks trading up on the day minus those trading down on the day.)
Right now you can see breadth is really strong — +1,400. But
what you really want to see is improvement in breadth from
here. You don't want to see the market gap up on strength and
see the breadth number deteriorate, or go flat. [If there's no
improvement] in volume or breadth, the market is more likely
to stay within a trading range. If that's
the case, I'll be in more of a scalp mode
and just play for small wins — a point or
two, or even less.
But if I see volume, trend in the
breadth and strong money flows, I'll play
for a big target. I'm looking to hold that
position until the end of the day, or add
to the position during the day, or maybe
hold part of it overnight.
Another thing to look for on a trend
day is program activity — buy programs
on a trend day up. You see that in the
TIKI (the Dow equivalent of the TICK). Any
time these guys fire off the baskets -
which they all do now — everything is so
highly indexed, it's going to include the
Dow stocks, so you'll see the TIKI at +24,
Something I'll almost always do the
day after an NR7 day is bracket stops
around the early morning range. When I
tested this out about five years ago, it
didn't matter whether you bracketed the
first 45 minutes range or the first hour's
range. If there's going to be a trend day,
you're going to catch it.