Being wrong and the 3 DAR !!

Today in the day trading threads I mentioned a concept that I've used for a few years as a guide. It is the 3 day average range. While it isn't a perfect method it will serve you well over time to make projections for a daily , weekly or monthly range.

It is simply the average of the last 3 days range from the real time session. You only use the prices that trade between 9:30 and 4:15 E.S.T for the emini S&P. Once you have the average you take 80% of that number as a minimum target. Coming into today we had the following ranges:

Fridays Range : 28.25
Mondays 23.75
Tuesdays 22.00
_______________________
Total 74 points
Divide by 3 = 24.6 Points ( round down to 24.5) = Max range

80% = 19.6 ( Round down to 19.5) Minimum range

With all projection methods we are constantly looking for swing highs and lows and trying to fiqure out if a high or low has been put in yet for the day. After 90 minutes you have a good feel and probability for the day so that is a great time to run the numbers.

We had what I thought was a possible low today at 1063. So adding the Minimum and maximum to that would get you to 1082.5 and 1087.5. This I thought went well with the big volume area up at 1084 that I have been watching.

I was wrong ! My mistake was not figuring out gap points when calculating the targets. Thursdays close was 1059.25 so we would have to add our minimum and maximum numbers to that just to be conservative as some like to use 3 day ATR. I find using the actual trade prices without gaps to be more accurate. But by including gap units we would have the following:

Thursdays Close of 1059.25

Plus Minimum range 19.5

= 1078.75

You would also have to add the Max target of 24.5 points so that would be a target of 1083.75

Upper target Zone of 1078.75 - 1083.5

I mentioned in the day trading thread that the market stilled owed us 5 points of actual trading range. Here is the thread link: You can also read about my failure as I was blindsided by a trendline that never broke but pulled out of that thinking after some losses. We need to be accountable, be responsible and most of all LEARN form our bad trades/thinking! Ok , Speech is over...back to this 3DAR idea.

http://www.mypivots.com/Board/Topic/5795/-1/es-short-term-trading-6-09-10


So the market starts selling off from 1077.75 and we need to start thinking about gap fills etc....so we need to start SUBTRACTING the min and max range amounts from the current high and at least thinking about the downside and a gap fill.

So we have a 1077.75 high and we subtract our min and max ranges of 19.5 and 24.5 points.

It gives us a target range of 1058.25 and 1053.25...Todays low was 1051.25 so we missed the low by two points. The point is that we can use this method to give some additional reference for targets.

You will find that this method will call the Range about 80% of the time according to my buddy who I shared this with. On daily and weekly ranges.

This week has a 3 WAR ( a 3 week averge range of 55 - 68.5 points). So this method utilizing the Lows and highs from the first three days this week has the following projections:

If the 1041.25 low holds as the weekly low then we should trade to 1096 - 1109.75.
If 1077.75 ends up being the High for the week then we should see 1022.75 - 1009.75.

I prefer the 3 DAR as it is most immediate and I just incorporate this into the other ideas and key areas. We'll see !

On Thursday which is Rollover we have a 3 DAR of 24 points and 80% of that is 19.25. Incorporating this with other methods ( specifically the Ratchets) can set up some excellent targets. You know how many Ratchet levels MUST trade in order to achieve your range projections! So I expect 3 Ratchets minimum tomorrow.

I hope some find this useful.

BruceM

When is a projection wrong ? The real hard part about so many projections is the time element. This method was taught to me before the S&P emini really had a lot of volume and the "Overnight" session didn't seem to matter that much.

Monday hasn't opened yet so techinically speaking some may choose to use the Overnight to qualify targets but that brings up the issue of using average true range in your calculations....If we use Tomorrows ( Mondays) open then 80% did trade as the current Overnight high is 1127.50...

so that could be considered damn close if you like to fade!!

here where the numbers and I'm only presenting it to give some ideas..

3WAR was 53.25, 80 % of that is 42.6 so we add that to Last mondays low of 1084.25 = 1126.85 !!

The other hard part about projections is having a method to trade from them...otherwise they just become "FUN" and interesting but not useable...OK so now everyone know why I was short on the Fathers day thread...Ya gotta beleive in your methods..no matter what it is..

Originally posted by BruceM

So far this is just plain wrong except for the fact that I expected Higher trade early in the week! The 3 WAR projects to 53.25 points this week so you can add 80% of that to the current low of 1084.25 to project above 1125..

My market profile work is hinting at lower trading on Friday so it will be an interesting day...Price action will always win for me over any projection method. Now a Gap up above 1125 would be cool and a nice sell signal...

Originally posted by BruceM

The fact that the market is not hitting full 3DAR and 3 wars means that this brief upleg may be labored...and over soon....

Looking for sells above last Fridays highs on Monday / Tuesday maybe the way to go. Extreme selling may even give us the elusive down OVB on the dailies. We can use the combined range of Monday and Tuesday to give us a clue as to where the 3WAR may trade...

The 3 war was 43 points coming into this week and we traded down 150% almost to the tick of that....many times this kind of expanded volatility and expansion of the 3war leads to a snap back in the opposite direction...

so that implies higher prices!! It will be interesting to see...

Okay going long maxing out both accounts Sunday night when the mkt opens!!!

Expecting something at least similar to this 5-minute chart I pulled from my archives:



Thanks for the "heads up" ... we're all gonna be RICH!

3dar or 3war how to add the points today high & low or yesterday close please explain