How to Determine and Use Locked-in Ranges. Step by Step
2018-03-05  1628

 

Locked-in Range (abbr. LR) is the trading range in which the volume of open positions accumulates, making the price change to the side where the prevailing volume of open positions will be locked at a loss, because the price will no longer allow to close in profits or break-even.

STEP 1. Determining the prices and time of a LR

Finding the high traded volume range within TPSL 1 Levels which means a high possibility of accumulated open positions with not intraday interest.

STEP 2. Waiting for a TPSL 1 Level Breakout

Take Profit Stop Loss level (abbr. TPSL level) is the price level at which sellers and buyers will exit the market, closing their open positions by take-profits and stop-losses.

STEP 3. Determining the direction and degree of open positions’ imbalance of a LR

LRA Basis: It is not profitable for a market maker to return the price into the LR with high volume of unidirectional open positions, so that loss-making positions cannot close at break-even levels.

Without knowing the direction and volume of open positions within a LR and the direction and volume of closed positions after the breakout of TPSL level, it is only possible to focus on the average scenario of volume’s appearance and the time spent out of the LR.

Figure. Average scenario for determining the volume’s appearance

STEP 4. Confirming or Changing the direction and degree of open positions’ imbalance

Confirming of LR is a price out-range quotation for the next trading day (after TPSL 1 Level Breakout) without the price's return to the LR.

We can assume a False Breakout only with Low Degree of Volume's Appearance and price out-range quotation must be shorter in time than in the considered range. In cases of Medium and High Volume Appearance, a price return means an insufficient imbalance of open positions of the range and that is LR cancellation.

 

Example 1. LR Determination

If the price is above support LR we are looking for opportunities to open Long positions.

If the price is below resistance LR we are looking for opportunities to open Short positions.

 

Example 2. False Breakout

If the price is above support LR we are looking for opportunities to open Long positions.

If the price is below resistance LR we are looking for opportunities to open Short positions.

 

Example 3. LR Cancellation

When support LR is cancelled we are looking for opportunities to open Short positions.

When resistance LR is cancelled we are looking for opportunities to open Long positions.

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