The task of determining the range for the next day is to assess the trading probability of a successful deal. Consider a simple but fairly reliable method for calculating such levels.
Calculation of levels for the next day determines the most probable range of movement, and the average price of a closed trading day actually shows the real balance of strength of buyers and sellers. This is very important when trading intraday.
To determine the market sentiment and the direction of the position, the reference range must be calculated at the opening of the trading day. We use three prices: maximum (high), minimum (low), closing price of the day (close) and two timeframes – D1 and lower, not less than M15.
First, we need to determine the reference price (in some sources it is called the typical price or the price balance of the day) as the usual average of three prices: TP = (high + low + close) / 3.
Next, for a new trading day, we calculate:
- the upper limit of the range: (2 * TP – Low) – acts as a resistance;
- lower limit: (2 * TP – High) – considered a support level.
After the day is closed, all levels are deleted and recalculated. The formulas are simple, it is convenient to calculate them in any application, for example, Excel, but if you are a programmer, even a beginner, you can probably write a simple advisor that will calculate these levels and display them on the chart automatically.
The levels have been determined – how to trade?
It is assumed that the range of the next day is large enough to trade on a rebound from the borders. That is: from the lower border – we buy, from the upper – we sell. Who currently dominates the market – bulls or bears – depends on the zone in which the current price is located: above the middle line – buyers, below the average – sellers.
In order not to “get” on a sharp breakdown of the range border, an open deal must be strictly controlled in the middle line zone. When, after a rollback from the border of the range, the price goes above / below the level of 50 – the current open deal can be closed or, at least, part of the profit can be fixed.
Since the main analysis is carried out on D1, and we open trades on M5, it is not necessary to wait for the appearance of clear patterns to enter the market. You can turn around in the border zone; hold the new trade up to 50% of the range.
To increase the likelihood of working out the proposed idea for determining the daily range, we recommend using the Sniper X patterns, most of which are just intended for trading on a trend reversal.
If the range of the closed day is too small, then the market is in a tight flat and accumulates strength for a breakout. In this case, the probability of a breakout of the borders is very high, so we will trade the breakout according to any standard scheme, for example, by placing pending orders outside the range.
If the day is closed by the Doji candlestick with a large shadow, there are chances of trading within the range, but weak; better to choose a different tactic.
If the boundaries of the range are confidently broken through at the beginning of the day, the trading pattern within the range is also canceled.