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Day 13 - The Logical Trader

SMB Capital The Logical Trader Outline: Part I Mark Fisher has employed a successful trading strategy for the past 20 years. At the core of this strategy are two key concepts: 1)the Opening Range and 2)the Pivot Range. He uses these two concepts to develop a multitude of favorable trading scenarios—high reward/low risk. Prerequisites for the ACD System Sufficient Liquidity—The ability to exit at or near your target price Intraday Volatility—Price action that produces good risk/reward setups The Opening Range—The trading range of a stock during the first twenty minutes (for intraday trading). Click picture to view in full size Click picture to view in full size The A trade—When a stock trades through the opening range by a predetermined amount and for a specified amount of time. The amount is based on the volatility of the stock. It is approximately 20% of the average daily range for the stock. The stock must trade through the A value and remain above/below that price for ten minutes. Your stop is placed through the Opening Range and is referred to as the B value. Click picture to view in full size Click picture to view in full size The C trade—When a stock has already established an A point then reverses through the opening range and establishes a C point. The C value would be the same distance above/below the Opening Range as the A value was. If the stock traded through the C value for 10 minutes you would establish the opposite position you established when the A had been established. Your stop is placed on the other side of the Opening Range and is referred to as the D value. Click picture to view in full size Click picture to view in full size Rubber band Trade—If a stock reaches an A point but changes direction before the point has been established then there is a low risk reversal trade. You would establish a short position if there was a failed A up and a long position if there was a failed A down. The A value would be where you would place your stop. Click picture to view in full size Click picture to view in full size The Pivot Range—Based on the pivot point which is calculated by using the previous day’s High, Low, and Close. The pivot point is equal to H+L+C/3. The pivot value is equal to [(H+L+C/3)-(H+L/2)]. The pivot range is equal to the pivot point +- the pivot value. • The pivot range is based upon the high, low, and close of a specified period of time • Where the market closes in relation to the pivot range for the following time period is and indication of sentiment. A close above the range is bullish and a close below is bearish • A pivot range above the market is resistance and below the market is support • If the market moves through the pivot range you could expect a significant move in that direction. Trade Against The Pivot—You can use the pivot range to establish a position. The pivot range will act as support/resistance. If a stock opens above the pivot range and sells off to the range you can establish a long at the top of the pivot range. If a stock opens below the pivot range you can establish a short at the bottom of the pivot range. Your stop would be on the other side of the pivot range. Click picture to view in full size Click picture to view in full size