I got several questions about an earlier post in comments and via DMs, particularly about this statement and a simple rule I swear by, "If you're precise and efficient with your entries—ensuring entries are always below 50/60% from the LoD stop based on ATR nature of the securities volatility" The best way to illustrate this is to use a live market chart on the daily in the opening hour, as the LoD (Low of Day) value is determined by the current market price, which is constantly changing. Using an end-of-day chart wouldn’t be accurate because it will reflects the complete daily candle which defeats the purpose because decisions making are at time. ATR need to first be understood as a measures of the range of an asset's price fluctuations over a set period, including any gaps in price. For ADR, it excludes the gap in price. I prefer using ATR because price gaps is included in representing a stock price extension beyond its moving average, and historically, prices often pull back when reaching certain multiples of the ATR. I've taken screenshots and annotated two different charts of vastly different ATR% and LoD dist. The first is $INDO, where the LoD is at 10%, and the second is $CORZ, where the LoD is at 104%, already surpassing the 50% limit I use for considering it as a potential buy at time. The key word over here is at time. A few things to note, i) LoD for any stock will always begin every trading day from 0%. ii) LoD will always be at 0% if stock of interest remains trading at low of day at time. iii) LoD does not account for high of the day, if you often execute buy stop order via ORH entries, u need to be aware of how stretched the intraday range already is. This can easily be resolved in your trade journal via creating a 'distance' column using predetermined enter price - predetermined stop loss, using the difference in value to compare with ATR of stock (ensure it's less than 50%). The goal of this approach is to avoid entering trades that are already overextended within their intraday range, using a quantifiable measure of recent volatility (ATR). After all, don't we all wish for our newly placed trades to close the session with some profit cushion? If you want more breakdowns to ATR formula; tradingview.com/v/uloAa2EI/
I got several questions about an earlier post in comments and via DMs, particularly about this statement and a simple rule I swear by, "If you're precise and efficient with your entries—ensuring entries are always below 50/60% from the LoD stop based on ATR nature of the securities volatility" The best way to illustrate this is to use a live market chart on the daily in the opening hour, as the LoD (Low of Day) value is determined by the current market price, which is constantly changing. Using an end-of-day chart wouldn’t be accurate because it will reflects the complete daily candle which defeats the purpose because decisions making are at time. ATR need to first be understood as a measures of the range of an asset's price fluctuations over a set period, including any gaps in price. For ADR, it excludes the gap in price. I prefer using ATR because price gaps is included in representing a stock price extension beyond its moving average, and historically, prices often pull back when reaching certain multiples of the ATR. I've taken screenshots and annotated two different charts of vastly different ATR% and LoD dist. The first is $INDO, where the LoD is at 10%, and the second is $CORZ, where the LoD is at 104%, already surpassing the 50% limit I use for considering it as a potential buy at time. The key word over here is at time. A few things to note, i) LoD for any stock will always begin every trading day from 0%. ii) LoD will always be at 0% if stock of interest remains trading at low of day at time. iii) LoD does not account for high of the day, if you often execute buy stop order via ORH entries, u need to be aware of how stretched the intraday range already is. This can easily be resolved in your trade journal via creating a 'distance' column using predetermined enter price - predetermined stop loss, using the difference in value to compare with ATR of stock (ensure it's less than 50%). The goal of this approach is to avoid entering trades that are already overextended within their intraday range, using a quantifiable measure of recent volatility (ATR). After all, don't we all wish for our newly placed trades to close the session with some profit cushion? If you want more breakdowns to ATR formula; tradingview.com/v/uloAa2EI/
🔥 this is really our most important job as trade executors/risk managers smaller the stop = bigger the size = bigger the account moves Example for illustrative purposes: - 1x adr stop + 1adr move up per day for 3 days = 3R trade - 0.5x adr stop + " " = 6R trade - 0.25x adr stop + " " = 12R trade By getting better entries, we can 4x the size of the position and 4x the return from one trade, if we get stopped, we don't lose any extra... good deal!
@jfsrevg Thanks for the explanation, but it seems a bit overcomplicated - if the stock's ATR% is 4%, and it already made a 4% move today, that means that LOD is 100% - if it would go up only 2%, then LoD would be 50%. Unless I'm wrong which is possible 😅
Jeff, you're a treasure trove for the young grasshoppers like myself to investing & trading to follow. Much Appreciated ☺️🙏 Aspiring to learn & get into Portfolio/Wealth Mgmt too, but after getting CMT or CFTe. Did you happen to catch Alex Spiroglou's IFTA presentation today, about his award winning innovation advancing MACD into MACD-V? Think it'll be the one I rely on from now on, for momentum... It's amazing Enjoy your weekend 👍 Cheers 🍷
@jfsrevg So you would take the setup on the left because its < 50-60% and not enter the chart on the right > 50+%… is that correct?
@jfsrev Is your ATR the same as the Built In ATR provided by TradingView. I tried to compare a screen shot of your NVDA from 1/8/24 and it was different. Thanks. I'm working on the PineScript you provided but am getting some errors.
Hello Jeff, thanks so much for sharing. I am just seeing this for the first time and going through it. While i intuitively used to understand this and be happy with low ATR buys and be upset with high ATR ones, this explanation spells it out and quantifies a strategy. Question, have you explored how this relates/compares to trying to achieve the same thing with VWAP and AVWAP on the daily? I would think it attempts to achieve the same thing but adds in the key ingredient of volume. I learned the AVWAP angle from reading @alphatrends Brian Shannon's books on the topic. I was wondering about your take on how these approaches compare? Many thanks for sharing!
@jfsrevg Following your posts on entry and risk mgt. Thanks a lot. It's really helpful
@jfsrevg It makes sense that I didn’t understand this because in reviewing past trades I noted that I’m always buying extended patterns, essentially chasing breakouts
@jfsrevg I saw this and also was confused for a minute. Figured out "below" meant "less than".
@jfsrevg The problem with trying to keep a low LOD dist. is that you often have to buy when it is still within a range before it has broken out like in your $INDO example.
@jfsrevg Do you ever ignore this rule? For example for stocks with a catalyst or with high RVOL?
@jfsrevg Why do you measure it to LoD and not to yesterday close when ADR does include gaps?
@jfsrevg How do you deal with undercut entries in which price drops much lower and comes back up sharply reacting from the MA? LoD will be higher in that but won't it be a good entry as many supposedly weak hands might have been removed in this process?
@jfsrevg It would be good if the indicator showing distance from LOD also showed %of ATR/ADR used up so far. Gives a bit more context to the significance of the pullback.
@jfsrevg Thank you Jeff. What's the indicator that populates the info in the top right? I believe you have shared before but I lost it 🙏
@jfsrevg Do you have an automated formula you could use to introduce all these factors to give you the amount of shares to buy based on where the price is and S/L at LoD ?
@jfsrevg Jeff, thank you very much for the detailed response to my question. I greatly appreciated it.
@jfsrevg If I wait a bit and see the candle leave a long wick to fill the gap then bouncing back up, by then the LoD dist might already be around 80%. Entering at that point feels like a mixed bag. If you can’t day trade due to time zone issue, how would you handle this situation?
@jfsrevg Great content as always, thanks Jeff! I have a question—let’s say in the first 15 minutes, a stock gaps up and shows strong vol & rel volume. At that point the LoD distance might be below 50%, but I’m worried about entering right away and then seeing the gap fill, hit my SL.