Long Term Secrets To Short-Term Trading

"aboard" a day that we think will be a 

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large-range up day do not look for a buying point very far below the open. As I said, large-range up days 
seldom trade very much below the opening price of the day. This means you must not look for much of a 
buying opportunity below the opening price. 
By the same token, if you think you have a tiger by the tail-the possibility of a large-range day-and 
price dips very much below the opening the probability of a large-range up close is greatly reduced. 
This is a major insight into profitable short-term trading. Do not blow it off. Here are several studies to prove 
the validity of this concept. Figure 2.14 shows on the horizontal scale the distribution of the difference from 
the opening to the close of all days in Treasury Bonds from 1970 to 1998. 
The vertical scale reflects the net change for all days, that is, the open minus the close. The fewer price points 
below the open (the zero horizontal line) and the closer those price points are to the zero line, the more days 
there are with positive-and large-open-to-close patterns. As you read the scale moving to the right, the farther 
below the zero line the price points are. The fewer positive price points we see above the zero line. 
Looking on the left side of this chart we see that large-range profitable 
closes seldom have large open minus close values. This trend is clear as the mass of data slants from left to 
right, that is, the profitable side of trading. 
Figure 2.14 Distribution of dollar value of open to close versus (open-low) 
as percentage of yesterday's range-T-Bonds. 

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The large opens to closes are pulled down by large opens to lows. This is also convincing proof 
the markets are not random. If they were, the distributions of highs minus opens, would be the same as 
opens minus the lows. This data, as simple as it might seem, reveals a powerul fundamental truth of
becoming a successful speculator. 
Figure 2.15 shows three different lines; the top one represents the probability that the close will be 
greater than the open, dependent on the bottom scale of the open minus the low. At the point I have 
marked, the data tell us that about 87 percent of the time we will close above the open if the dip from 
the open to the low is less than 20 percent of the day's range. 
The next line coming down the chart only deals with days that the distance from the open to the 
close would have made a trader more than $500. At the point I have marked on this line, we see that 
about 42 percent of the time we closed above the open by an amount making $500 or more if we did 
not take more than a 10 percent dip below the opening. Finally, the third and bottom line represents 
days that closed with more than $1,000 of profits above the opening. These are the biggest range days 
in the bond market. 
At the point marked, we see that 15 percent time, we get these huge blast-off days if there is a dip 
less than 10 percent.
Figure 2.15 Probability of dollar value of open to close versus (open-low) 
as percentage of yesterday's range-T-Bonds. 

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BY the same token, there is an almost zero chance of getting a large blast-off close above the opening if 
price has dipped 70 percent to 80 percent below the opening. 
This is true of all three lines; again telling us the greater the price swings below the open, the less of a 
chance we have of a positive open to close. This proves my rules: