When we make money in trading?
Have you thought about that? Not how, but when?
You could say when the fundamentals are on our side. Or when the market bounces from a support level. Trading with the trend would be a good choice here. Maybe it is when the price action pattern appears or our favourite indicator signals. Or even when the planets align in a particular order.
You can give more explanations, and you'll probably be right for most of them.
But all those explanations lack something very important. Тhey lack concreteness. They do not point the exact moment when the opportunity arises to make the most money.
And when is that?
It's simple as that!
No matter what we trade, or how we trade it a wide-range day is always influencing our results. It can either boost our profits. Or it can be our worst nightmare when against us.
To visualize this better, let's look at some examples.
Let's consider a hypothetical situation about a trader who bought Tesla's stock (TSLA) on 23rd of August 2019 and paid for it $211 per share. Let's imagine that the trader was fortunate enough to hold it till now (this was written on 22nd of January 2020). The highest price reached was 548.58. See the chart below.
What a rise, huh?
For five months (103 trading days) Elon Musk's company increased its stock price with $337. On average, it is a bit higher than $3 per day.
But was it moving with this average daily gain?
Let's look at the days marked with yellow. Those are the largest daily ranges in the observed period. Let's calculate what was their contribution to the rise of Tesla's stock price.
$34 + $21 + $30 + $34 = $119 or ~35% of the full range.
Wow, isn't that interesting?
Those biggest four days are responsible for over one-third of Tesla's increase!
And this is without including the gaps. We could count them as large ranges as well because there was buying which occurred outside of the regular session.
It seems that it pays to trade during such days!
But to be sure let's look more examples.
Next is the most traded currency pair EURUSD. Look at the chart below.
Since EURUSD is not moving much, large range days are even more important. This time the horizontal line in the ATR pane is showing days with over 90 pips range. Here we are counting only days in the direction of the trend. We see that only 3 days (out of 71) made 289 pips of the total range (533 pips).
Those 3 days are responsible for 54% of the move!
But there is more. As you can see, there are other days which are bigger than 90 pips. So lets this time assume the reality of a daytrader or scalper. When you’ll make the most money? In these large range days, of course.
You might think this is something specific to all those "old-fashioned" instruments. Alright, let's check Bitcoin. Next is a chart of the Bitcoin futures (traded on CME) showing the last big move to the upside.
One more time, no words are needed.
142 days = $10750
3 large range days = $5170 (48% of the full range)
This is yet another example of how important are those days for us traders.
Let's finish this up with the one last chart. This time it is the Gold futures.
In this example, we find that percentage even higher.
Only six volatile days are bringing 80% of the full range.
Not only that but here we find more days which meet the criteria of having a large range. Some of them are in the direction of the move we are considering. Some are in the opposite direction. All those huge days are providing an excellent opportunity for short-term and day traders.
All those examples illustrate how important those large days are for all traders. From scalpers to long-term traders when the large range day is in our direction, we make money.
What causes those huge moves? Are they the result of random market activity, emotions, news or something else? Is there a reliable price action pattern or an indicator which precede them?
Can they be forecasted?
I don't know the answers to all those questions, but I intend to find them. I am beginning huge research where I'll check many technical and fundamental factors to see is there a reliable connection between them and the appearance of those large moves.
The journey starts now, and you are invited to take part.
Join the Search for the Large Range Days and let us find together what causes those money-making opportunities.
The next update is coming. Stay tuned!
P.S. Did a large range day recently occurred in your trading? Share with us
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