when the decline in perfor-mance is in process.
Quit Your Job, Withdraw Moneyfrom the Bank, Get a Computer,Subscribe to a Quote Service,and Begin Trading
I have seen more traders lose money this way than any other way.Futures trading is a profession. It takes time to learn the tech-niques, and it takes experience to implement those techniques suc-cessfully. There is no substitute for actual trading experience. Itnever ceases to amaze me how many doctors, lawyers, and engi-neers quit their otherwise stable and lucrative professions to takeup trading. Even more amazing is the sad but true fact that theseprofessionals think they can make money by taking a few coursesor seminars, or by reading a few books. When their efforts meetwith losses, they are surprised that they have failed. What theyhave failed to understand is that futures trading is not like being adoctor, lawyer, or engineer.
My advice is simple. Don’t quit your job. Don’t buy expensivequote equipment or computers. Don’t fool yourself into thinkingthat the right system, the right computer, or the right broker willmake you successful. Trial and error, experience, self-discipline,and consistency will make you more money than will expensiveequipment.
Use Spreads to Avoid Losses
This may seem like a sophisticated strategy. In actuality, it’s justanother way of avoiding a loss until it gets big enough to causeserious pain. While there’s nothing wrong with trading spreads asspreads, there’s everything wrong with spreading a position toavoid a loss. The only thing this will do for you is to lock in theloss. Often both sides of the spread will work against you, andyou will end up increasing your loss. The time to take your loss iswhen the time to take your loss has come; it’s not time to spreadthe position to avoid a loss. When used appropriately, spreads aregood vehicles that may be used very profitably. However, whenused to avoid a loss, they can be deadly.106 = Chapter Nine
Pyramid Your Position as ItBecomes Profitable
Pyramids are burial vaults. Unfortunately, many traders mistaken-ly believe that as a market moves in their favor, they must addsuccessively larger numbers of contracts to capitalize on the move.What happens, of course, is that the pyramid is built upsidedown. These individuals will buy one unit at the start of a move,add two or three more at a higher price, and add five or six moreat an even higher price. The pyramid becomes top-heavy, and theslightest change in trend will send it crashing to the ground alongwith the trader’s profits.
If you’re going to build a pyramid, build it with a sound base.Establish your largest position at the beginning of a move and addsuccessively smaller numbers of units as the market moves inyour favor. You will still have a good-sized position when themove comes to an end, and your average cost will be much betterthan if you had built the top-heavy pyramid. In spite of all weknow about futures trading and all that has been written about theill-advised procedure of the top-heavy pyramid, there are stilltraders who think this strategy will work for them; however, suc-cess is rare indeed.
Attempt to Pick Bottoms andTops as Often as Possible
After all, the better your entry and the better your exit, the moremoney you stand to make. The reasoning sounds good, and ifthere were a good way to pick tops and bottoms with a highdegree of accuracy, the reasoning would be correct. But tops andbottoms are elusive, and they are dangerous. Often a great deal ofvolatility is associated with tops and bottoms, making them hardto find and hard to stay with once they have been found.
Buy Futures Options toLimit Your Risk
This is a wonderful way to throw your money into the deep, darkhole. At first blush, this strategy seems just as logical as do manyothers. Joe Granville, stock market guru of the 1970s, used to say,“Tf it’s obvious, then it’s obviously wrong.” This is especially trueEmotions, Traders, and Markets 107
in futures options. In practice a vast majority of puts and callsexpire worthless. To buy a call when you expect an uptrend or tobuy a put when you expect a downtrend is often a waste of time,money, and commissions.
Options lose time value quickly. Your timing with options mustbe even better than it is with futures; it’s a case of double jeopardy.You buy an option because you think you're buying time. Youthink that your timing need not be as precise as it is with futuresbecause you can only lose your premium plus commissions whenyou buy options. This is the illusory aspect of the situation.
Professional futures traders who make money with options aremost often sellers of options, since they know that most optionsexpire worthless. They sell a deteriorating asset, and the odds areclearly in their favor. Thus, if you’re going to trade futuresoptions, do it in a professional way by using options strategiesand by being an options seller rather than an options buyer.Unless you’re willing to approach options in a professional way,don’t even bother getting involved in this market.
How about Some Positive
Suggestions?
Now that I have your attention, I will give you a few positive sug-gestions regarding trading discipline. Again, I will attempt toavoid standard recommendations.
Begin with a Simple Trading System. My years of researchhave revealed one important thing: The simplest trading systemsoften work best. Yes, I know all about the claims and the hypothet-ical performance records. I know all about the optimized systemsand the black box systems and the virtues of artificial intelligence.But I keep coming back to the same conclusion as a result of myresearch: Simple systems work best. Once you have experiencedprofits using a simple method, you can experiment with complexsystems and decide for yourself.
Be Independent, Isolate Yourself, and Remain Pure. Thetrader’s mind is a delicate machine. It is easily affected by themany inputs that daily impinge on the decision-making process.The futures market thrives on opinions, mass psychology, emo-tion, news, and rumors. The less you hear, the better off you'll be.108
Chapter Nine
Most systems are correct between 50 and 65 percent of the time;however, even this 15 percent margin above chance occurrence isobviously not a large margin of safety. By allowing the input ofothers to affect you, this margin may be neutralized and you willlose your advantage. The ability to clearly see the markets is agreat asset.
Don’t Read the Market News. If you subscribe to one of thetwo daily U.S. financial papers, do so for technical data only. Thenews reports and opinions of the reporting staff are poison unless,of course, you can train yourself to do the opposite of what themajority recommends.
Don’t Get More than Two Advisory Services. Actually,you're better off with one or none. If you get one service, follow itas closely as you can. Don’t pick and choose from among its rec-ommendations. Follow all recommendations or follow none. Mosttraders pick and choose wrong.
Use a Discount Broker. Unless you do business with a brokerwho is also your advisor, use a discount broker who will not both-er you with opinions or pressure you with trading ideas. If youdecide on a broker who will also advise you, make sure it is onewith considerable experience who is not in business for the simplepurpose of generating commissions. Although difficult to find,such brokers are definitely out there.
Don’t Discuss Your Trades with Anyone. Discussing yourtrades, signals, methods, or indicators with other traders onlyinfects them with your ideas and you with theirs. Confusion willbe the end result.
Don't Read Popular Trading Magazines. Most are full ofideas that don’t work. If you have arrived at your goal of self-dis-cipline, read all you want. Otherwise, avoid trading.
Don’t Discuss the Markets with Friends. Your opinions arenot important to friends and their opinions are not important toyou. In stating your opinions, you will reinforce them to yourself,and you will be inclined to hold on to them in spite of what yoursystem may Say.Summary
Emotions, Traders, and Markets 109
Begin with Sufficient Capital, Trade Small Positions, andDiversify Your Trading. Attempt to spread your risk over sev-eral different markets. Avoid the lure of large positions. The needto trade large positions essentially stems from ego and feelings ofinadequacy. Many people need to compensate for negative self-concepts by asserting their power in the markets. They attempt toprove their machismo by being aggressive, trading large positions,taking chances, and asserting their independence. You will bemuch better off beginning as a small fish in a big pond who seekssmall, reliable market moves as opposed to large, unreliablemoves. Size creates problems. It’s not the size of your positionthat’s important, but how you trade your position that will makeyou a winner or a loser. Once you have learned how to trade, youcan tackle the problems that come with large positions.
Change Your Perception of the Market. That's easier saidthan done! All organisms are captives of their perceptions. If yousee the market as an adversary, you will approach it as a soldierapproaches combat. If, however, you perceive the market as avehicle that you must learn to operate, you will learn how to oper-ate it to your advantage. Your attitude about the market will shapethe way you trade. It is far easier to go with the flow of the marketthan it is to fight the trend.
Do Your Homework. If you have settled on a particular tradingsystem or method, you must be strictly dedicated to it. If you donot keep your work up to date, you will miss most market moves.
Be Prepared for Numerous Consecutive Losses. One of themost frustrating, anxiety-provoking things a trader can experienceis a string of numerous consecutive losses. These are the most dif-ficult times for futures traders. They cause errors, inconsistency,lack of discipline, and the search for new systems. If you are pre-pared for the worst before it happens, you will be able to copewith it when it actually does happen. And, believe me, it will!
The study of human emotion provides us with the big picture oftrading. If we can identify where human emotion is taking the restof the trading community without becoming influenced by it, we110
Chapter Nine
will know that the markets will soon be moving in the oppositedirection and profit by that knowledge. This distance from theemotions of others, however, requires us to be able to distanceourselves from our own emotions.
Following our rational thoughts means fighting the powerfulcurrent going in the opposite direction. This constant internal bat-tle requires enormous energy and commitment. Nevertheless, thedestination for the battle-scarred trader who is willing to engagein this effort is the land of successful trading. Given the emotionsthat run rampant in day trading, my rules are very important.
Additionally, there are, to be sure, many more rules that applyto successful day trading. Some of the ones included in this chap-ter may not be universally applicable, and some rules that areneeded for individual traders may not have been included. Forthat reason, you would benefit immensely from a formulation ofyour own trading rules because you, alone, are the best judge ofwhat you need. To do this, however, you must first become totallyaware of your needs, assets, liabilities, skills, and goals. In themeantime, study the ones I have included and see how they fit.What Markets toDay Trade’?
The reasonable man adapts himself to theworld; the unreasonable one persists in tryingto adapt the world to himself. Therefore allprogress depends on the unreasonable man.SHELLEY
In order for the day trader to succeed, it will be very important totrade markets that have two essential characteristics: They mustbe actively traded markets, and they must have fairly large dailytrading ranges. In other words, part of the formula for success as aday trader is knowing which markets to trade. Essentially, the daytrader must restrict his or her trading to markets that have highvolatility. Although these markets that are best suited for day trad-ing will not always remain constant, there are ways the tradermay ascertain which markets are the best ones to trade at anygiven point in time.
Here are some guidelines to use in selecting which marketsare ideally suited for the purpose of day trading. You will notethat I essentially use two parameters: trading volume andvolatility.
111112 ~~ Chapter Ten
Trading Volume
The first consideration of the day trader should be the number ofcontracts that are traded daily. In some cases it will be very clearwhich markets are the most active. Markets such as the currencies,interest rate futures, and stock index futures will likely remainamong the most active for many years to come. However, fromtime to time as a result of changes in fundamental market condi-tions, various markets may become more or less active. In theevent of drought, for example, the grain and soybean complexmarkets would become highly active and therefore suitable forday trading. Some markets such as orange juice futures that arenormally inactive can become heavily traded during periods offrost and freeze. Such situations when they arise will require thatyou use your best judgment as to whether day trades are feasibleat that time. Ultimately it will always be up to the individual trad-er to determine whether a market has sufficient trading volumefor the purpose of day trading.
In order to assist you in making your decision about which mar-kets to day trade and which markets to avoid in day trading, thissection will provide a number of guidelines. Note that none ofthese are written in stone. Unfortunately, there will always besome degree of judgment that may be involved in making the ulti-mate decision as to which markets should be traded. Determininga priori all circumstances and conditions that may arise in thefuture is impossible. Therefore, experience will truly be the bestteacher in the final analysis.
In terms of trading volume it’s always best to look at the num-ber of contracts actually traded in the contract month that youwish to trade. Please note that the individual number of contractstraded for a particular delivery month is significantly differentthan the total volume traded for the entire commodity. Treasurybond futures, for example, may show a total volume of 847,000contracts traded on a particular day; however, the actual volumein the active or nearby contract month may only be 200,112 con-tracts. While this example illustrates the significant differencebetween total volume and actual volume for the contract month,the situation in this case would'clearly make a lead contractmonth suitable for day trading. In another situation, however, thelead contract month may not show sufficient trading volume,since most of the activity may be occurring in the back months.What Markets to Day Trade? 113
As a general guideline I prefer to day trade markets that have aminimum of 10,000 contracts traded daily in the lead months.Please note that this is a general guideline. In some situations suchas coffee futures (as of this writing), trading volume does not meetthis minimum criterion; however, the market is still reasonablysuited for day trading, provided one follows specific guidelinesregarding the use of order entry that may minimize possibly dele-terious effects of low trading volume.
Clearly, the best markets to day trade will not always be thesame period. As of this writing (1998), the most active and themost readily day traded futures markets based on trading volumealone are as follows:
= S&P 500
= Treasury bonds= Crude oil
= Heating oil
= Swiss franc
= Deutsche mark= British pound= Japanese yen
= Soybeans
= Coffee
Please note that I have included coffee here in spite of the fact thattrading volume does not usually meet the minimum criteria Ihave indicated above. My reason for including coffee is because itis a market with considerable volatility a vast majority of the time.In this case I am making a decision to place volatility ahead oftrading volume.
You may find it interesting to know that the opposite situationoccurs in Eurodollar futures. This market trades very heavily interms of overall trading volume; however, the intraday moves arerelatively small most of the time. This market is, therefore, notsuitable for the purpose of day trading. Eurodollar futures are, infact, one of the most actively traded markets in terms of tradingvolume. We “outside” traders, by which I mean the off-the-floortraders, cannot successfully day trade this market. And this bringsus to our second criterion for selecting markets to day trade.114 = Chapter Ten
Volatility
The second important consideration in determining which mar-kets to day trade is volatility. Not all traders think of volatility inthe same operational way as I do. For the purposes of this discus-sion, I consider volatility to mean “large trading range” on anygiven day. Preferably, the market you are considering for day trad-ing should have, at the very minimum, a recent history of fairlylarge trading ranges. Given that dollar values for different marketsare based on contract specifications and tick value, the best way todetermine volatility,is to convert the daily trading range into dol-lars, rather than to make comparisons based on points.
Here are a few examples that will illustrate my point aboutvolatility very clearly. First, let’s consider the example of Eurodollarfutures. Assume that the market trades in a range of 20 points in 1day. In this example, a range of 20 points in 1 day multiplied by 25dollars per point equals $500. Deducting the cost of commissions,assuming slippage on entry and exit, the bottom-line or net profit,assuming one could capture most of the daily trading range, mightonly be 15 ticks. The end result would be a net profit of only $375.Given that Eurodollar futures’ trading range is considerably lessthan 20 points, you can see that it is unfeasible to day trade theEurodollar futures market unless you are a floor broker.
On the other hand, consider the case of Treasury bond futures.The average daily trading range in this market is frequently 25ticks. At approximately $32 per tick, a 25-tick daily trading range isapproximately $900. This is a very respectable trading range forday traders and is certainly much more palatable and workablethan the $375 trading range given in the Eurodollar example above.
The quintessence of all day-trading markets at the time thisbook is being written is, of course, the S&P 500. Rarely a day goesby without S&P trading in a range of less than 600 points. Thisrepresents a sizable dollar amount. Clearly the S&P 500 futuresmarket is the preeminent day traders market. The good news isthat S&P 500 futures are not only volatile but also show large trad-ing volume each day. It is this combination that makes the S&P500 market ideal for day traders.
The Double-Edged Sword
As you can clearly see, the ideal market for day traders is the mar-ket that has both range and volatility. Both elements must be pres-ent in sufficient degree in order to make day trading viable as wellWhat Markets to Day Trade? «115
as potentially profitable. The successful day trader, however, mustalways bear in mind that volatility and trading volume constitutea double-edged sword. While they help create day-trading oppor-tunities, they are also responsible for the wide trading swings thatfrequently cause day traders to take losses. Volatile markets“giveth and taketh away.” Just as a volatile market will help theday trader by presenting opportunities, volatility will also createprice swings that have the potential to cause losses by hitting yourstop losses.
Changing Conditions
L indicated earlier that day-trading opportunities may change overtime as a function of different conditions, fundamental and/orpolitical, that may arise from time to time. Among the conditionsthat may create trading opportunities in relatively quiet marketsare such things as weather, political events, armed conflict, and, ofcourse, changes in fundamental economic conditions. Considerthe following examples:
Orange Juice. This is a market that normally trades very light-ly. Certain events—frost and freeze scares, for example—canresult in a substantial increase in both market volatility as well astrading volume. When this happens, the normally quiet OJ mar-ket becomes very active—even to the extent that it can be usedfor the purpose of day trading. In such situations the experiencedday trader will watch closely for signs that conditions are aboutto change, resulting in a return to the usually thin market condi-tions.
Coffee. The coffee market has for many years been subject notonly to significant price moves based on weather, but it has alsobeen a highly political market, subject many times to the actions ofcoffee cartels. When such conditions have arisen, coffee futureshave become highly volatile, frequently making moves of wellover 500 points per day. At $375 per 100 points, day trading coffeefutures is quite viable. On the other hand, when the news back-drop in coffee futures is rather tame, the 100- or 200-point rangemakes this market unsuitable for day trading.
Sugar. Typically the sugar market trades in a range of approxi-mately 20 points per day. Since the tick value of sugar futures is116 = Chapter Ten
$11.20, a 20-tick trading range per day is insufficient for day traders.Hence, under normal conditions the sugar market is not recom-mended for day trading. Weather factors, production fundamentals,demand, and inflationary pressures can cause the daily trading rangeof sugar futures to expand markedly. Under such circumstances thedaily trading range can increase to as much as 60 points per day.Even under such conditions, the daily trading range of sugar isunlikely to exceed $1000. Therefore, it is reasonably safe to assumethat the day trader will rarely, if ever, day trade sugar futures.
Can Commodity SpreadsBe Day Traded?
A topic that has received very little attention in the past is the useof commodity spreads. Over the years I have discovered that onlya few traders truly understand spreads. In fact, I have found thateven those traders who do understand spreads have difficultyplacing spread orders, lacking understanding of the technicalaspects of spread trading and the knowledge that is required totrade spreads. This is truly unfortunate, since I consider commodi-ty spread trading to be one of the highest-probability and mostreliable aspects of the futures trading.
Experienced commodity traders are well aware that most com-modity spreads have a strong underlying seasonal basis. It is thestrong seasonal basis of most commodity spreads that makes themviable position trading markets. On an intraday basis, however,seasonality does not apply. Hence, no matter how strong a season-al tendency may be, it will not be applicable for the purpose ofday trading. The question is “Can spread be traded on intradaybases using some of the technical tools contained in this book?” Inorder to answer this question, we must first determine whetherthe spreads we wish to day trade meet the two criteria we havealready discussed in this chapter. Specifically, is the spread volatileand does the spread have sufficient trading volume to permitviable and effective day trading?
The first issue, volatility, is easily answered by examining theentry day-trading range of the area’s spreads. In so doing we findthat there are certain spreads that appear to meet the volatilityprerequisite for day trading. At the time of this writing, a numberof currency, interest rate, and grain/soybean complex spreadsmeet this criterion. Remember that the ideal markets for day trad-What Markets to Day Trade? 117
ing spreads will change over time. Please refer to my discussionabove for details regarding such changes.
The issue of trading volume, which is also important in deter-mining what markets to day trade, is not easily determined forspreads. Since a commodity spread is not considered a countabletrade in terms of volume statistics, it is impossible to know for cer-tain how many commodity spreads of a given type are being trad-ed. As a general rule, it is not unreasonable to assume that largetrading volume in the underlying individual contract month ormarkets will correlate strongly with large trading volume in thespread. Ultimately, however, the individual trader will need todecide which spreads to trade.
Recommended Spreadsfor Day Trading
Here is a list of spreads that are currently active and thereforeviable for day trading. Please note that these spreads will notalways be sufficiently active for the purposes of day trading.
The Swiss Franc versus D-Mark Spread. This has been areasonably active spread for many years. Since the relationshipbetween the Swiss franc and the Deutsche mark is not only aclosely watched spread but also a very active one, it is quite suit-able for the purposes of the day trader. Depending upon the fun-damental relationship between the two markets at any given pointin time, this spread can be relatively tame or highly volatile. I sug-gest using the same price range and volume criteria in order toevaluate this spread.
The Swiss Franc versus Japanese Yen Spread. This spreadhas also enjoyed a lengthy history of volatility, as well as consider-able trading volume. It is therefore highly suitable for day trading.A word of caution is strongly recommended at this point. Becauseof the volatility in this spread, I urge you to use specific priceorders for entry and exit. By using specific orders, you can avoidconsiderable problems, as well as losses and poor price executions.
The Swiss Franc versus British Pound Spread. Thisspread has not been as volatile as the two previously described.Although there have been times during which this spread hasbeen extremely volatile, there have also been periods of relative118 = Chapter Ten
dormancy. It is therefore imperative that you trade this spreadonly during times of high volume as well as volatility. Use the fac-tors previously cited in order to evaluate these conditions. As inthe case of most spreads, I strongly recommend using specificplace orders for entry and exit.
Soybeans versus Corn Spread. Here is yet another spreadthat tends to alternate between periods of volatility and periods ofrelative dormancy. Typically, the times during which this spread issufficiently active for trading are when weather conditions duringthe planting season and the harvest season affect crop develop-ment. Carefully consider and evaluate the trading range in thisspread before you determine whether to day trade it.
Wheat versus Corn Spread. As in the case of the soybean ver-sus corn spread, the wheat versus corn spread also has periods ofrelative quiet and relative volatility. These are most often associat-ed with fundamental conditions such as weather, harvest, plant-ing, and import/export business. Do not rule this spread out as aviable day-trading vehicle, but be certain to trade it only whenboth markets are volatile.
Energy Spreads. In addition to the spreads cited above, theenergy spreads tend to be good vehicles for day trading. In partic-ular, heating oil versus crude oil, unleaded gas versus heating oil,unleaded gas versus crude oil, and natural gas versus any of thepetroleum complex markets tend to be volatile spreads.
This chapter discussed a number of guidelines that should beused in determining which markets to day trade. Specific ruleswere given. The possibility of day trading spreads was also dis-cussed in detail. I indicated that there are a number of spreads thatcan be day traded. I have not addressed technical tools for thepurpose of day trading spreads. These are discussed in otherchapters.ll
Closingsand Openings
Whatever you do, do cautiously and look tothe end.
ARISTOTLE—GESTA ROMANORUM
Of all the things I have learned about futures trading, the mostimportant is that markets form patterns. The future direction of amarket is often, but not always, discernible from the study of itspatterns. And there are many patterns one can study—cyclicalpatterns, seasonal patterns, open interest and volume patterns,indicator patterns, price structure patterns, point-and-figure pat-terns, Japanese candlestick patterns, chart patterns, and more. Ofthese, many are worthless or specious. But there are a few worthknowing, worth studying, and worth trading.
Of all patterns, the most important and reliable I have found arebased upon combinations and variations of the four importantprice variables each day: the opening price, the closing price, thehigh price, and the low price. By studying these, we can developindicators that will be especially beneficial not only from thestandpoint of predictability but, moreover, from the standpoint ofprofitability.
119120 = Chapter Eleven
High/Low/CloseRelationships
As an example of a price pattern that can occur within the course ofa day, consider the relationship between the high price, the lowprice, and the closing price of the day. A market that ends the dayclose to its high of the day is one that is clearly in control of the buy-ers. Buyers have overpowered sellers, bidding prices higher, and asa result, the closing price of the day is near the high of the day.
A market that closes close to its low of the day is in control ofthe bears. The selling pressure of the bears has been enough topush prices lower and lower until they end the day near their low.In such a case, the bears are in control, overpowering the buyingpower of the bulls.
A market that consistently closes close to its high of the day, dayafter day, is a market that is clearly being controlled by the bulls,whereas a market that consistently closes close to its low of the day,day after day, is a market that is clearly bearish. The same relation-
es Denon S : bays whee clos€.WAS NEAR. ahh # a& DAY.
 
Figure 11-1. Closing near highs on daily price chart. Note how the market surged higher fol-lowing 3 days on which the closing price was very near the high price of the day.Closings and Openings 121
ship applies on an intraday basis using shorter time lengths than aday. As an example, consider the daily price chart of T-bondfutures (Figure 11-1). This illustration shows how a strong bullishmove develops subsequent to three daily price bars where the end-ing price (close) is near the high of the daily time frame. Figure 11-2shows the opposite situation. Note how the daily crude oil futureschart shows a strong decline subsequent to three daily price barswhere the ending price (close) is near the low of the daily timeframe. Note also that for the duration of the decline, many of thedaily price bars show a close near the low of the bar. This is typicalof bear trends, while the reverse is typical of bull trends.
Figures 11-3 and 11-4 illustrate this relationship on intradaycharts of different time lengths. As you can see, the same basicrelationships hold true on an intraday time frame.
Although the close-near-high or close-near-low relationship is avaluable one, there are others that may prove even more valuable.In fact, a number of such relationships may be combined in orderto yield more reliable results.
Ke penores DAYS WHEREClase Was NEAR DAILYLow :
 
Figure 11-2. Closing near lows on daily price chart.122 = Chapter Eleven
17.8 9:20
O= 12222
H= 12225
L= 12220 : . . . . . . :
C= 12225
je ~iiaves  lavaa Viz/2e [i229 i2730_Ti273i
 
Figure 11-3. Closings near price bar highs on intraday 30-minute chart.
Open/Close Relationships
Yet another, and, I believe, more important relationship is that ofthe close versus the open. A market that closes higher than whereit has opened is one that has likely been under accumulation forthe day or for the given time frame. A market that closes lowerthan where it opened is one that is likely the subject of persistencyselling. A consistent close below opens is considered bearish,while a consistent close above opens is considered bullish. A mar-ket that closes higher than where it opens and near the high of theday is one that I consider very bullish, and vice versa for a marketthat closes near its lows and below its open.
Figure 11-5 illustrates the close-greater-than-open relationshipona daily price chart.