Brad Wolff - Using Encyclopedia on the Open, Opening Range, and up to Mi...

okay now we're going to move on to Brad  Wolfe who's going to talk about using  encyclopedia on the open opening range  and up to midday  thank you Richard  so one of the first things I want to  talk about is  false beliefs with parts of trading and  some of these slides are from the video  course but the reason why I chose this  slide right here is  when you look at trading it's very easy  to want to  memorize a bunch of slides or look at  the encyclopedia from the perspective  that if you just learn everything in the  encyclopedia and memorize it it will  help you with trading and that's true  but one of the things I would argue is  the first thing people should focus on  is learning the video course so since  I'm talking about trading the open I'm  the following slides I'm going to talk  about things to understand about trading  the open and how to reference the video  course  so the first thing before I talk about  the open I want to talk for a second  about binary decisions  and this is a simple flow chart that I  made and I'm a real big proponent in  flow charts and just trying to train  your brain and think about the market  from the standpoint of binary decisions  so we've all seen a version of this in  the video course or the books the  Market's either in a trend or trading  range and the goal the way I see binary  decisions is one of the most important  goals with trading is to right here  reduce the number of decisions that you  have to make at any given time so if you  can distill down really quick to is the  market in a trend or a trading range  you will have a better idea on what to  look for  and the key with this is to prevent this  right here analysis paralysis  and here's an easy example this is from  the video course but the Market's either  in a trend or a trading range  always in is another way you can view  you can think about binary decisions so  if the market if you're looking to buy  here would you rather risk Four Points  would you rather buy risking Four Points  to make four points or sell risking Four  Points to make four points  so that is another way that's one of the  reasons why Always In is so important  another thing to remember that I kind of  see it as binary decisions is bar  numbers and what bar you're on relative  to a five minute chart so we all know  the first bar of the day there's a 20  chance that the Market's seen the high  or the low of the day however by the  first hour what's the probability that  you've seen the higher the low of the  day and that's one of the reasons in the  in the blogs that I say so often most  Traders should wait 6 to 12 bars is if  you wait  you will give yourself higher  probability so if the market often goes  sideways on the open you know let's take  the first bar on this chart does it make  a lot of sense to sell below bar one you  know it's low probability and there's a  20 chance so if you just always assume  on the open that the first half hour is  going to go sideways or have a lot of  overlap you can save yourself a lot of  bad trades on the open  because typically it's a limited order  Market  next I want to talk about how to  actually use the encyclopedia  this kind of goes back to what I was  talking about a few minutes ago the  first goal with trading is you have to  figure out how to read price action and  another way to view that is you have to  understand what your Edge is in with  Trading  and an easy way to do that is start with  the video course so  I would suggest before someone dives  into the encyclopedia really ask  yourself do you really understand the  video course  and you can break the video course into  sections fundamentals if you want to  learn about trading the open really  study trading the open and learn what  are the key characteristics to look for  in the open because if you know what to  look for in the open you will you'll be  more prepared to look through the  encyclopedia and know what to look for  most people have trouble using the  encyclopedia because they don't know  what they're looking for  once someone has studied the video  course and at least has a strong enough  grasp to understand what to expect such  as when they're trading the open the  next thing they should focus on is this  right here the index of the encyclopedia  so if you go to the encyclopedia website  and you scroll to the bottom you'll see  download the latest and you'll see a big  spreadsheet  this is the first thing I would start  setting so I'm going to go to the next  slide here's an example of Gap up and  gap down  here's an example of a bunch of Gap up  pattern  a bunch of Gap up examples and the first  piece is instead of going through all  the parts and just memorizing where  everything is learn how to spot things  and be able to look it up so for me if  there's a big gap up or down on the day  I'm going to pull up the index scroll to  here and try to distill down which is  the most likely so if it's a trend from  the open I'm going to see Gap up and  trend from the open right here and then  I'm going to look right here and I can  go to there's the shortcut and then I  can decide is it a trend from the open  is it a trend from the open bullet Trend  that's going to reverse is it a trend  from the open that's going to form a  trading range now I have three logical  ideas on the open  so now I'm going to talk about the  opening range  the first thing to remember on the open  is contacts is less important lower  probability things are more common on  the mark on the oven because the  Market's searching for support and  resistance  so always remember that low probability  events are pretty common on the open of  the day  next here are four common outcomes on  the open double tops double bottoms  wedge tops and wedge bottoms if you've  read the blogs you'll notice that I  pretty much say say this every day that  if you're looking for the opening swing  it'll often happen after a double top or  double bottom or wedge top or wedge  bottom so be prepared for one of these  patterns on the open and what do these  patterns mean this these patterns mean  that just about every open of the day is  going to form some kind of a trading  range double top double bottom wedge  bottom wedge top all of them are a type  of trading range  here are three important building blocks  for trading  and it's pretty similar to what we just  looked at wedge bottoms wedge tops  double tops double bottoms and then  breakouts your tip you're going to see  one of these patterns form on the open  now the most important is to expect one  of these right here  next I want to tie in binary decisions  when you're trading the open so if you  think about it if you've read if you've  read the books or watched the video  course you know there's really three  common outcomes on the open you can get  a bull trend from the open you can get a  breakout mode or an opening reversal  you're going to get one of those through  so if I'm trading the open the number  one thing I want to do just like that  binary decision tree I showed earlier I  want to break down and quickly figure  out which one of these is most likely so  if it's a bull trend from the open  I want to thank my I want to start  thinking about characteristics of a bull  Trend or is the breakout strong does it  look like a small pullback Trend are  there gaps you know what is most likely  next Once I figure out which one of  these is most likely I can begin to  think about encyclopedia you know what  are some encyclopedia examples so if  it's a trend from the open I'll go to  the Gap up trend from the open and start  looking at examples of that if it's a  breakout mode maybe I go to part one and  look at breakout mode examples and if  it's an opening reversal I'll look for  maybe a gap up and buy climaxes or  opening reversals  and again here's an example from the  video course of three common outcomes  trend from the open  up trend from the up and down breakout  mode here and here and then an opening  reversal  so the first one I want to talk about is  a bull trend from the open probably the  single most important thing to remember  on a bull trend from the open is sixty  percent of the time it's going to evolve  into a trading range  that means twenty percent of the time it  lasts all day and twenty percent of the  time in general you get a reversal into  an opposite trend so the key point is  most trend from the opens do not they  have a lot of trading range price action  at least some point in the day  another thing to remember about trend  from the open Trends is eighty percent  of the time I call this kind of the 80  50 rule  and it's the same I mean it's we've all  seen it in the video course but 80  percent of the time you will get a minor  reversal on a trend from the open so a  rally minor reversal eighty percent  chance of this on the open fifty percent  chance you get a major reversal  of the initial move so we have a bear  sell-off 50 chance it completely  reverses Fair Trend eighty percent  chance there's going to be a minor  reversal and the slides that I'm showing  the past three or four slides that I  showed these are just easy you know you  can print them out you can put them on  your desk and you can just kind of  remind yourself and remember  80 chance when you get a breakout on the  open there's a minor reversal eighty  percent fifty percent chance there's a  major reversal  another thing I want to talk about is  breakout mode most days are going to  form some kind of breakout mode pattern  and  the way I would think about that is  whenever you have a breakout mode  look to First you want to measure how  big is the range and if you've had a  failed reversal up failed reversal down  and you look at the range and you say  it's not that big relative to the prior  days you're probably going to get a  measured move up or down if you if the  range is really big it it may not form a  measure move up or down but you can see  we went sideways for about the first 18  bars we got an upside breakout and a  measure move up here sideways for a lot  of bars strong bear break out and follow  through deep pull back and then a  measure move down  and again here's another example of two  common examples for a opening range  situation  where you get pretty much a small  breakout and then sideways  and here you get a bull breakout nice so  you can call it a breakout mode pattern  but the point is you do not have to  enter breakout mode on the first bar you  can get a small breakout for a bar or  two and then go sideways for a lot of  bars and then inner breakout or you can  have a breakout mode here and then get a  strong upside Breakout  so next I want to talk for a minute  about opening reversals  it's common to get an opening reversal  after some form of test of support or  resistance so a rally to the moving  average a sell-off to last week's low  sell up to yesterday's low and the key  point with opening reversals which I'll  show in the next slide is 50 of the time  you can get a reversal of a breakout so  strong sell-off and even though it looks  strong it was just a cell climax test of  yesterday's low  strong rally but it was a vacuum test of  yesterday's high  break out on the open another example  fifty percent of the time no matter how  strong the sell-off or the rally is it  can reverse  here  is an example of what I was talking  about whenever you have a breakout mode  or an opening reversal situation  if the range is not that big you can get  a measured move and even a strong bull  trend for those of you that traded the  e-mini today if you remember back the  sell-off was rather big so when we did  get the opening reversal I believe is  around bar 20 or 24.  the market got back to the open of the  day but it could not get a measure to  move up one reason for that is it was  more like this the range was too big  and here  I want to talk for a minute about gaps  whenever I see a really big gap or  really any Gap that looks bigger than  usual I'm instantly thinking about this  section in the index  if there's a gap on the open I want to  start to narrow what type of Gap we're  going to get  and here's just some easy probabilities  to remember when you get a really big  gap on the open  next I want to talk about trading the  middle of the day  in the middle of the day it's really  important to  to decide is the market different from  the opening structure so depending on  the type of day you have if you get a  bull trend from the open pay attention  to that slide I showed earlier right  here is the market if you're in a bull  trend from the open are you reversing  down into a trading range are you  reversing down is the market completely  reversing the move  but anyways here are some easy examples  of  midday reversals or changes in the  structure and even here we had a trading  range on the open and nothing changed so  really you can call the open in the  midday pretty much the same structure  and I've already talked about that slide  the other thing I look for is if there's  a trend from the open I want to measure  is it a leg in a trading range or a leg  in a trend so how do you do that think  back to the video course are there open  gaps are the gaps closing are is the  breakout strong is it look like a small  pullback Trend where it's really hard to  buy I'm always trying to put myself in  the position of counter Trend Traders so  if I'm looking at a sell-off I'm always  thinking how easy if I'm a bull can I  buy below bars and make money and if I'm  a bull and I'm constantly losing buying  below bars I know I should probably sell  that is different than this so if I can  decide that Bulls are making money here  I can start to go to the encyclopedia  and look up trading ranges or look up  gaps closing here if it's a small  pullback Trend I can go to small  pullback trends  next when you have a trading range early  on the open the key thing you want to  look for is you want to look for signs  of strength so did you get a bull  breakout with follow through that'll  probably lead to the second leg if  you're in a trading range do you have a  strong bull bar and a follow-through bar  closing above or below a lot of bars our  Traders getting trapped  foreign  and that is the end of this presentation  but one of the things I want to leave  you with is again when you look at the  encyclopedia it can be daunting to  figure out how do you use it the first  thing I would challenge you to do is go  back and figure out how do you you know  what do you know from the video course  one of the things that I like to do  I'll go back to the slide for just a  second is  think about things from a decision tree  so I've if I have the video course I can  look up trading the open and I want to  make notes on what's the most likely  event they don't want to study that and  make it muscle memory so when they open  I'm always thinking about this slide and  my goal is to distill down is it a trend  from the open is it a breakout mode  pattern and is it an opening reversal  pattern if I can figure out one of those  patterns I'll be in a lot better shape  to be able to use the encyclopedia  and that is it for this presentation  thanks Brad