ORB, GSV & GST – Trading Inherent Price Levels

One thing I regard as a great flaw about TA is that usually the chart of a technician is polluted with so many indicators that he/she isn’t able to analyze the prices!

We should understand that every indicator derives from one or more of this four and only four sources: Price, Volume, Open Interest and Time.

Today I would like to talk about a price “pattern” that is very interesting and useful to develop all sorts of strategies: ORB (“Opening Range Breakout”, by Toby Crabel), GSV (“Greatest Swing Value”, by Larry Williams) and GST (“Greatest Swing Time” – in bad, very bad English, by your friend here… I’m still working both in the setup and the name!).

Instead of explaining both terms immediately, I would like to propose a reflection.

Imagine that you want to buy a stock, index futures contract, option, commodity, currency, bonds, etc. (Yes, it applies to all these asset classes!).

Let’s say you’ll want to do a day trade. Imagine if you could pick the bottom of the day. How nice would that be?  (And if you’re short, imagine if you could pick the high of the day?).

In the case of a buy, it wouldn’t be wise to pick every intraday reversal trying to find the bottom. Vice-versa for the short and day’s high.

If we analyze many up days of a specific chart, we can run a very simple calculation in order to know the mean, the standard deviation and other statistic measures of the SWING DOWN of these UP DAYS.

Likewise, if we analyze many down days, we would be able to get knowledge about the average, median, maximum and standard deviation of the SWING UP of these DOWN DAYS.

Let’s say that the average SWING UP of a DOWN daily bar is 0.75%, the standard deviation is 0.54% and the distribution of the DOWN daily bars shows that 65%  have HIGHs BELOW the AVERAGE SWING UP.

If we expect a down day (from previous study or strategy approach), we could safely sell short if  the day goes up until 0.75% from the open. Actually, the closer to this SWING UP, the SAFER. We could use (from the 0.75% swing up point) a stop-loss of 1, 1,5 standard deviations.

In most cases we would be able to pick the high of the day.

But: a) What if the price continues to go up? b)What if the price plunges from the opening?

a) If the price continues to go up we could merely be stopped out or reverse the trade to the long side – BECAUSE THE MAXIMUM SWING UP OF A DOWN DAY WAS ALREADY REACHED. This means that, after a certain point, a swing up is no longer statistically part of a down day.

b) If the price plunges directly from the opening, we could enter the trade to the SHORT SIDE only after the maximum (or average + Standard Deviation) SWING DOWN of an UP DAY. Likewise, we could go LONG at this point, if the prices reaches this level and reverts itself.

Of course, we are talking in general terms here, because we can go further and analyse many more things. For instance, I use 5 types of day (Up, Down, Neutral, Reversal Up and Reversal Down) and test the GSV’S – Greatest Swing Values for all these days.

This GSV can be an accurate measure of volatility in the very short term. Even before the VIX.

Those entry points mentioned before are the ORB – Opening Range Breakouts by Toby Crabel. He uses a 10-day average of the GSV as ORB.

— What about GST????

GST is simply the TIME of the day where most of the DOWN DAY’S HIGH and UP DAY’S LOW occurred.

Imagine you study your favorite stock, index futures, option, commodity, etc, and discover that, for example, the TIME of the day where the HIGH of a DOWN day occurs it’s, say, 10 o’clock. You can add this information with the GSV figure, and enter the trade with the most probability of success. Vice-versa for Up days.

In the TAPE READING aspect, you will begin to learn what kind of price movement this stock (for example) makes just before the high of the down day, or the low of the up day.

You will be able to understand also that no all Up days are made equal, likewise to the rest of days. There will be days when the low of an Up day will come 5min, 15min, 30min, 45min + after the open… And that all these GST’s tend to lead to different types of Up days. For example, BIG UP DAYS make their low of the day usually after 5 to 30 minutes. There’s no time to lose when we want to get higher!

These concepts (GSV, ORB, GST) are not a trading system by themselves (but they surely can turn into one if correctly studied and managed). Nevertheless, they add up like entry and exit levels applicable for the systems we already have.