Wednesday, February 01, 2006

Strategy Session: I saw it on the Discovery Channel


It does not hurt to learn from a few million years of evolution by watching some successful hunters at their craft. Take the leopard as an example, a classic ambush predator. A leopard will wait in a tree for the antelope to walk by and then just pounce on it unleashing the surprise attack. This strategy has allowed the leopard to be one of the more successful hunters on a percentage basis. (Source: I saw it on the Discovery Channel, Animal Planet)

In recent discussions with TraderMike we developed an alert called the NR7. The NR7 alert looks for a type of behavior that is analogous to the antelope walking under a tree where the leopard awaits. Like the leopard waiting to spring into action, the alert tracks a stock's footprint or candlestick movement and reports the coiling moment where the predator tenses up before striking (i.e., when the stock's trading range suddenly compresses or narrows after 7 candlestick periods - in this case 15 minute candlesticks). This alert often signals the moments before an explosive move in one direction or another. Here is a completely preconfigured intra-day strategy that is designed to take advantage of this behavior (See the footnotes for choosing a longer term approach). (Note: this strategy is similar to one we mentioned in a previous post. The difference is only in the amounts of volatilty required and therefore, the amount of alerts each strategy generates.)

Waiting to Pounce!

The idea is that every 15 minutes you will see stocks that meet this criteria. Pull them up in your charting tool and decide in which direction the explosive move is most likely to take place. Then watch. This is a fun one that puts you on safari.

Who Can Benefit
Anyone looking for and anticipating large price movements. Most likely these are traders who search for good scalping opportunities. Others can benefit as well.

Footnotes
  • You can use NR7 to represent days instead of 15 minutes. Apply NR7 to days by selecting the Min Range Contraction filter and set it to 7. Then choose alerts like New Highs of 7 days or Crossing Resistance. Maybe that will be a future Strategy Session.
  • A primer on the basics of NR7: "Coiled Spring" and "Bollinger Band Tactics" by Alan Farley.
  • Relevant scans: 7 Day Consolidation, Recent NR7 Alerts.
  • Link to other Strategy Sessions here.
  • Trader Mike uses the strategy and responds! New
  • Remember that these set-ups are sketches meant to give you an idea how to model your own trading plan. Use this 'as is' or modify it to your own liking as many others do. Know, however, that Trade-Ideas.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, alerts and all other features are for research purposes only and should not be construed as investment advice.

6 comments:

Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

For what it's worth I've been using "nr7" for some time now (in quotes because it is basically an evening or morning doji star). I have had the best results in concert with a 45 period linear regression strategy where the "nr7" observation touches or exceeds the low of the lower linear regression band. That seems to work like a spring board and frequently throws the price back to the opposite extreme.

D TradeIdeas said...

Sounds like you are practionner of the Precision Trading System and the methods taught by Mel Raiman. I agree. I see similar patterns occur when the stock travels horizontally and hits the outer regression channel. We have several alerts and filters designed to look for this.

Filters:
Linear Regression Divergence

Alerts:
Linear Regression Trends

Anonymous said...

Never heard of Mel Raiman - I'm self-taught. If I can't "roll it myself" I'm not going to smoke it - My trading rule number 1 - Trust no one but yourself (and keep a close eye on that guy).

Nice site - I'll be back from time to time.

D TradeIdeas said...

I look forward to your return and future comments - I shall call you the "Lone Ranger/Trader".

Best

123 123 said...

Nice story as for me. It would be great to read more concerning this matter. Thanx for sharing that info.
Sexy Lady
A level escorts London